Sergio Bechara, President and CEO, Millennium Corporate Solutions

Business failure has historically been a risk insurance carriers have assiduously avoided. Other than trade-credit insurance and limited credit-enhancement policies, the risk of default of a business is typically borne by the business owner.
In today's lending environment, as banks look to mitigate their own exposures to risk, nearly all small and midsize business owners must sign a personal guarantee to secure financing. The result is that, if the business fails, the business owner's personal assets are used to cover the loss.
This is obviously an extremely angst-inducing, emotionally charged decision, which, if it ends badly, can cause significant hardship — including loss of the owner's home.
But with the introduction of personal guarantee insurance, a new category of coverage is now available to help business owners manage personal risks — and sleep better at night.
Smart Business spoke with Sergio Bechara, president and CEO of Millennium Corporate Solutions about how personal guarantee insurance works, how it can help business owners, and what features to look for in this coverage.

What is a personal guarantee?

A personal guarantee is essentially a signed blank check without an expiration date. But with the introduction of personal guarantee insurance, business owners can manage their personal risks — and enjoy the peace of mind that comes with knowing their personal assets will not be used to cover the loss if their business fails.

Why is personal guarantee insurance important?

Insurance practitioners are the guardians of their clients' assets, both personal and professional. They manage, mitigate, isolate, insure and have contingency plans if bad things happen.
As part of that task, they work with lawyers to create barriers to limit liability through corporations, LLPs, LLCs and trusts. For remaining liability exposures, there is general liability, auto liability, professional liability and a host of other coverage types, all of which are used in the name of protecting assets. For property exposures, the insurance practitioners negotiate special forms coverage for their clients.
Despite the great efforts of the insurance carriers, underwriters and brokers, bankers can destroy much of their good work with one stroke of the pen. In their efforts to mitigate their own risk exposure, banks have penned personal guarantee requirements that tie the business owner's assets to the business itself. These requirements, which most small and midsize business owners must meet in order to receive financing, have the effect of taking down the walls your insurers have so diligently erected, allowing for the unthinkable.
Since a personal guarantee gives the banker access to a business owner's personal assets (often including a spouse's) if a business loan is in default, bankers have traditionally had the upper hand in these situations — until now.

How does personal guarantee insurance help business owners?

Personal guarantee insurance (PGI) helps neutralize the impact of the required guarantee. It puts back the wall between the business and personal assets by covering a substantial portion of the liability of the personal guarantor in the event the loan guarantee is ever called.
With this policy, everyone can be satisfied: the bank receives the personal guarantee to complete the loan, while the client's personal assets are protected by the insurance policy.
As a benefit to bankers, one provision of the PGI policy is that the proceeds can be assigned to the lender, thereby improving the collateral position of the bank. Now, the bank has an even better position — it has the business as collateral and a signed personal guarantee, which is backed by an insurance policy to which it is a beneficiary.

What features should business owners expect as part of this coverage?

Some features of the new insurance are:

■ PGI is typically issued within six months of a loan origination or material modification.
■ It can be designed to pay up to 70 percent of a deficiency judgment in the event of a loan default.
■ It can typically be underwritten based on the same information the bank uses when making the business loan.
■ While it adds cost to the overall loan transaction, it provides a tremendous backstop in the event personal assets are ever called into play.
■ Since the bank is likely in a better position if the proceeds are assigned to the lender, it may be able to offer a more attractive interest rate on the loan once the coverage is put into place to help offset the cost of the insurance.

How can insurance brokers and risk managers ensure the personal guarantee insurance is working as it should?

As we undertake the managing of risks for our clients, a review of the personal guarantee should be included in exposure-review checklists, just like we review employment practices, environmental or cyber-liability exposures.

Sergio Bechara is president and CEO of Millennium Corporate Solutions. Reach him at (949) 679-7120 or [email protected]

Insights Risk Management & Insurance Services is brought to you by Millennium Corporate Solutions

Pervez P. Delawalla, CEO, net2EZ Managed Data Centers, Inc.

Digital risk management strategy used to be a luxury reserved for huge corporations, but in today's business climate, even small businesses need to understand digital risks and set up a plan to protect themselves.

"Today's society is completely based on digital recordkeeping and digital media," says Pervez P. Delawalla, CEO of net2EZ Managed Data Centers, Inc. "If companies don't have strategies in place to insure their digital lives, they are just playing with fire."

Smart Business spoke with Delawalla about how to develop a sound digital risk management strategy and how to ensure it will work when you need it.

What are some examples of major digital risks, and how can these risks affect businesses?

One of the principal types of risk comes from those once-in-a-lifetime events, like the terrorist attacks of 9/11. Many companies were impacted by those attacks, and not just from a personal standpoint. Getting their businesses back up and running was very difficult, and companies that didn't have digital strategies in place for data backup were at a complete loss.

Then, you have the standard risks faced by businesses on a daily basis. Data is lost through  negligence, or even through unforeseeable events beyond one's control, like flooding or fire. In California, the major player in this category is earthquakes. To mitigate that risk, a West Coast company can have servers located on the East Coast, so in the event of a catastrophic earthquake, their data and it's high availability would be safeguarded.

Digital risk management or risk mitigation solutions used to be cost prohibitive for small businesses — but not anymore.

How can businesses protect themselves from digital risks?

There are a couple of ways that businesses can insulate themselves from these risks. The first step is looking at where their digital life exists, so to speak, for both their company and their personal data. That will determine what type of risk exposure they have. For example, if a company decides to keep its servers on the premises, it would have its physical and digital location present in the same place. If something happens to that building, everything goes with it.

Usually, the company's head of information technology would be responsible for recommending a disaster recovery location just for the data, which would be located away from the office space.

The best course of action is to employ the services of a disaster recovery company with the ability to provide highly redundant locations so data can be protected in the event that the physical location goes offline.

What should be covered in a digital risk management strategy? How does it interface with overall risk management strategy?

One of the issues that needs to be covered is the geographic separation between your primary location and your disaster recovery location. You don't want your digital disaster recovery location just a couple blocks down the street from your physical location, because if there is a large-scale event, like a natural disaster of some sort, you are likely to lose both.

Another is the 'cut over test.' This is where both systems are run in parallel to make sure that if you needed to cut over to the disaster recovery location that it would function in precisely the same way the primary location does. It's like doing a fire safety drill. The frequency of the drill is determined by the company's industry.

From that point, you start looking at the exact goal for the business in question. If the company is in an industry where going offline for a few days does not pose any real risk to business, that company would require a different strategy than a financial trading firm for whom a few minutes offline would be detrimental.

The strategy should be based upon and built around the business type. For example, a trading firm would want a disaster recovery location that is a few hundred miles from its physical location, and would ideally conduct a monthly or weekly full cut over test.

What should businesses look for in a digital risk management and insurance company or policy?

The stability of the company is important, as is its knowledge base, but the facility itself is the most important part. Look at where the servers are housed; confirm that the facility is SAS 70 certified. That designation means that independent auditors have certified the company's policies and procedures.

Also, check how redundant the facility's backup system is. Does it have at least one standby generator to back up the primary generators that provide power? Look into the integration and configuration of the cooling systems, as well.

Those are all integral parts to ensuring the entire facility works in unison. You may be spending a lot of money on disaster recovery, but if one of those systems is offline,  your solution could still fail when you need it the most. It's like installing smoke detectors throughout your house, but not testing them; you are taking an unnecessary and dangerous risk.

How can businesses ensure their digital risk management strategy is working?

The key is running those drills. Systems change all the time, and a company's digital systems will never remain the same, particularly given the pace of the society we have now. Updates are constant, whether from the software tech side or the hardware tech side, so it is very important to run those drills on a frequent basis in accordance with your type of industry.

Also, look at your checklist and conduct audits. Make sure you have selected a provider that is SAS 70 certified and has good systems, and remember that just because everything checks out doesn't mean that you shouldn't go over that checklist and run those drills again next year.

Pervez P. Delawalla is CEO of net2EZ Managed Data Centers, Inc. Reach him at (310) 426-6701 or [email protected]

Insights Risk Management & Insurance Services is brought to you by Millennium Corporate Solutions

Sergio Bechara, President and CEO, Millennium Corporate Solutions

Business failure has historically been a risk insurance carriers have assiduously avoided. Other than trade-credit insurance and limited credit-enhancement policies, the risk of default of a business is typically borne by the business owner.
In today's lending environment, as banks look to mitigate their own exposures to risk, nearly all small and midsize business owners must sign a personal guarantee to secure financing. The result is that, if the business fails, the business owner's personal assets are used to cover the loss.
This is obviously an extremely angst-inducing, emotionally charged decision, which, if it ends badly, can cause significant hardship — including loss of the owner's home.
But with the introduction of personal guarantee insurance, a new category of coverage is now available to help business owners manage personal risks — and sleep better at night.
Smart Business spoke with Sergio Bechara, president and CEO of Millennium Corporate Solutions about how personal guarantee insurance works, how it can help business owners, and what features to look for in this coverage.

What is a personal guarantee?

A personal guarantee is essentially a signed blank check without an expiration date. But with the introduction of personal guarantee insurance, business owners can manage their personal risks — and enjoy the peace of mind that comes with knowing their personal assets will not be used to cover the loss if their business fails.

Why is personal guarantee insurance important?

Insurance practitioners are the guardians of their clients' assets, both personal and professional. They manage, mitigate, isolate, insure and have contingency plans if bad things happen.
As part of that task, they work with lawyers to create barriers to limit liability through corporations, LLPs, LLCs and trusts. For remaining liability exposures, there is general liability, auto liability, professional liability and a host of other coverage types, all of which are used in the name of protecting assets. For property exposures, the insurance practitioners negotiate special forms coverage for their clients.
Despite the great efforts of the insurance carriers, underwriters and brokers, bankers can destroy much of their good work with one stroke of the pen. In their efforts to mitigate their own risk exposure, banks have penned personal guarantee requirements that tie the business owner's assets to the business itself. These requirements, which most small and midsize business owners must meet in order to receive financing, have the effect of taking down the walls your insurers have so diligently erected, allowing for the unthinkable.
Since a personal guarantee gives the banker access to a business owner's personal assets (often including a spouse's) if a business loan is in default, bankers have traditionally had the upper hand in these situations — until now.

How does personal guarantee insurance help business owners?

Personal guarantee insurance (PGI) helps neutralize the impact of the required guarantee. It puts back the wall between the business and personal assets by covering a substantial portion of the liability of the personal guarantor in the event the loan guarantee is ever called.
With this policy, everyone can be satisfied: the bank receives the personal guarantee to complete the loan, while the client's personal assets are protected by the insurance policy.
As a benefit to bankers, one provision of the PGI policy is that the proceeds can be assigned to the lender, thereby improving the collateral position of the bank. Now, the bank has an even better position — it has the business as collateral and a signed personal guarantee, which is backed by an insurance policy to which it is a beneficiary.

What features should business owners expect as part of this coverage?

Some features of the new insurance are:

■ PGI is typically issued within six months of a loan origination or material modification.
■ It can be designed to pay up to 70 percent of a deficiency judgment in the event of a loan default.
■ It can typically be underwritten based on the same information the bank uses when making the business loan.
■ While it adds cost to the overall loan transaction, it provides a tremendous backstop in the event personal assets are ever called into play.
■ Since the bank is likely in a better position if the proceeds are assigned to the lender, it may be able to offer a more attractive interest rate on the loan once the coverage is put into place to help offset the cost of the insurance.

How can insurance brokers and risk managers ensure the personal guarantee insurance is working as it should?

As we undertake the managing of risks for our clients, a review of the personal guarantee should be included in exposure-review checklists, just like we review employment practices, environmental or cyber-liability exposures.

Sergio Bechara is president and CEO of Millennium Corporate Solutions. Reach him at (949) 679-7120 or [email protected]

Insights Risk Management & Insurance Services is brought to you by Millennium Corporate Solutions

Sergio Bechara, President and CEO, Millennium Corporate Solutions

Business failure has historically been a risk insurance carriers have assiduously avoided. Other than trade-credit insurance and limited credit-enhancement policies, the risk of default of a business is typically borne by the business owner.

In today's lending environment, as banks look to mitigate their own exposures to risk, nearly all small and midsize business owners must sign a personal guarantee to secure financing. The result is that, if the business fails, the business owner's personal assets are used to cover the loss.

This is obviously an extremely angst-inducing, emotionally charged decision, which, if it ends badly, can cause significant hardship — including loss of the owner's home.

But with the introduction of personal guarantee insurance, a new category of coverage is now available to help business owners manage personal risks — and sleep better at night.

Smart Business spoke with Sergio Bechara, president and CEO of Millennium Corporate Solutions about how personal guarantee insurance works, how it can help business owners, and what features to look for in this coverage.

What is a personal guarantee?

A personal guarantee is essentially a signed blank check without an expiration date. But with the introduction of personal guarantee insurance, business owners can manage their personal risks — and enjoy the peace of mind that comes with knowing their personal assets will not be used to cover the loss if their business fails.

Why is personal guarantee insurance important?

Insurance practitioners are the guardians of their clients' assets, both personal and professional. They manage, mitigate, isolate, insure and have contingency plans if bad things happen.

As part of that task, they work with lawyers to create barriers to limit liability through corporations, LLPs, LLCs and trusts. For remaining liability exposures, there is general liability, auto liability, professional liability and a host of other coverage types, all of which are used in the name of protecting assets. For property exposures, the insurance practitioners negotiate special forms coverage for their clients.

Despite the great efforts of the insurance carriers, underwriters and brokers, bankers can destroy much of their good work with one stroke of the pen. In their efforts to mitigate their own risk exposure, banks have penned personal guarantee requirements that tie the business owner's assets to the business itself. These requirements, which most small and midsize business owners must meet in order to receive financing, have the effect of taking down the walls your insurers have so diligently erected, allowing for the unthinkable.

Since a personal guarantee gives the banker access to a business owner's personal assets (often including a spouse's) if a business loan is in default, bankers have traditionally had the upper hand in these situations — until now.

How does personal guarantee insurance help business owners?

Personal guarantee insurance (PGI) helps neutralize the impact of the required guarantee. It puts back the wall between the business and personal assets by covering a substantial portion of the liability of the personal guarantor in the event the loan guarantee is ever called.

With this policy, everyone can be satisfied: the bank receives the personal guarantee to complete the loan, while the client's personal assets are protected by the insurance policy.

As a benefit to bankers, one provision of the PGI policy is that the proceeds can be assigned to the lender, thereby improving the collateral position of the bank. Now, the bank has an even better position — it has the business as collateral and a signed personal guarantee, which is backed by an insurance policy to which it is a beneficiary.

What features should business owners expect as part of this coverage?

Some features of the new insurance are:

  • PGI is typically issued within six months of a loan origination or material modification.
  • It can be designed to pay up to 70 percent of a deficiency judgment in the event of a loan default.
  • It can typically be underwritten based on the same information the bank uses when making the business loan.
  • While it adds cost to the overall loan transaction, it provides a tremendous backstop in the event personal assets are ever called into play.
  • Since the bank is likely in a better position if the proceeds are assigned to the lender, it may be able to offer a more attractive interest rate on the loan once the coverage is put into place to help offset the cost of the insurance.

How can insurance brokers and risk managers ensure the personal guarantee insurance is working as it should?

As we undertake the managing of risks for our clients, a review of the personal guarantee should be included in exposure-review checklists, just like we review employment practices, environmental or cyber-liability exposures.

Sergio Bechara is president and CEO of Millennium Corporate Solutions. Reach him at (949) 679-7120 or [email protected]

Sergio Bechara, President and CEO, Millennium Corporate Solutions

Business failure has historically been a risk insurance carriers have assiduously avoided. Other than trade-credit insurance and limited credit-enhancement policies, the risk of default of a business is typically borne by the business owner.

In today's lending environment, as banks look to mitigate their own exposures to risk, nearly all small and midsize business owners must sign a personal guarantee to secure financing. The result is that, if the business fails, the business owner's personal assets are used to cover the loss.

This is obviously an extremely angst-inducing, emotionally charged decision, which, if it ends badly, can cause significant hardship — including loss of the owner's home.

But with the introduction of personal guarantee insurance, a new category of coverage is now available to help business owners manage personal risks — and sleep better at night.

Smart Business spoke with Sergio Bechara, president and CEO of Millennium Corporate Solutions about how personal guarantee insurance works, how it can help business owners, and what features to look for in this coverage.

What is a personal guarantee?

A personal guarantee is essentially a signed blank check without an expiration date. But with the introduction of personal guarantee insurance, business owners can manage their personal risks — and enjoy the peace of mind that comes with knowing their personal assets will not be used to cover the loss if their business fails.

Why is personal guarantee insurance important?

Insurance practitioners are the guardians of their clients' assets, both personal and professional. They manage, mitigate, isolate, insure and have contingency plans if bad things happen.

As part of that task, they work with lawyers to create barriers to limit liability through corporations, LLPs, LLCs and trusts. For remaining liability exposures, there is general liability, auto liability, professional liability and a host of other coverage types, all of which are used in the name of protecting assets. For property exposures, the insurance practitioners negotiate special forms coverage for their clients.

Despite the great efforts of the insurance carriers, underwriters and brokers, bankers can destroy much of their good work with one stroke of the pen. In their efforts to mitigate their own risk exposure, banks have penned personal guarantee requirements that tie the business owner's assets to the business itself. These requirements, which most small and midsize business owners must meet in order to receive financing, have the effect of taking down the walls your insurers have so diligently erected, allowing for the unthinkable.

Since a personal guarantee gives the banker access to a business owner's personal assets (often including a spouse's) if a business loan is in default, bankers have traditionally had the upper hand in these situations — until now.

How does personal guarantee insurance help business owners?

Personal guarantee insurance (PGI) helps neutralize the impact of the required guarantee. It puts back the wall between the business and personal assets by covering a substantial portion of the liability of the personal guarantor in the event the loan guarantee is ever called.

With this policy, everyone can be satisfied: the bank receives the personal guarantee to complete the loan, while the client's personal assets are protected by the insurance policy.

As a benefit to bankers, one provision of the PGI policy is that the proceeds can be assigned to the lender, thereby improving the collateral position of the bank. Now, the bank has an even better position — it has the business as collateral and a signed personal guarantee, which is backed by an insurance policy to which it is a beneficiary.

What features should business owners expect as part of this coverage?

Some features of the new insurance are:

  • PGI is typically issued within six months of a loan origination or material modification.
  • It can be designed to pay up to 70 percent of a deficiency judgment in the event of a loan default.
  • It can typically be underwritten based on the same information the bank uses when making the business loan.
  • While it adds cost to the overall loan transaction, it provides a tremendous backstop in the event personal assets are ever called into play.
  • Since the bank is likely in a better position if the proceeds are assigned to the lender, it may be able to offer a more attractive interest rate on the loan once the coverage is put into place to help offset the cost of the insurance.

How can insurance brokers and risk managers ensure the personal guarantee insurance is working as it should?

As we undertake the managing of risks for our clients, a review of the personal guarantee should be included in exposure-review checklists, just like we review employment practices, environmental or cyber-liability exposures.

Sergio Bechara is president and CEO of Millennium Corporate Solutions. Reach him at (949) 679-7120 or [email protected]

Sergio Bechara, President and CEO, Millennium Corporate Solutions

Insurance touches the lives of all U.S. citizens, yet is still a fairly mysterious financial instrument even for the most sophisticated business leaders. To better understand the behavior of this insurance one must blend a mix of economics and social science to arrive at common sense explanations for what is happening and why.

"There are very meaningful financial impacts felt by those who purchase health insurance, and those impacts are largely caused by politics," says Sergio Bechara, president and CEO of Millennium Corporate Solutions.

As an insurance broker, Bechara is well-positioned to understand the plight of health insurance companies and employers alike.

Smart Business spoke with Bechara about the ramifications of President Obama's health care plan on the health insurance industry and how it will affect employers.

Why are health insurance costs rising?

Ask yourself what you would do if you owned a health insurance company facing a legislative tsunami known as 'Obamacare' with two potential financial threats looming.

1) The government might compete against you. However, because the government, unlike your other competitors, can print money when it needs more, you might be competing against a better capitalized opponent.

2) You might be forced to take on risks you did not calculate for as a condition of doing business. This is a very big deal.

How can the addition of new risks pose a financial threat to insurance companies?

How many banks failed in the last four years? More than 350. By contrast, how many insurance companies have failed? Only one.

Insurance companies have a major investment in actuarial analytics to help determine their risk and, therefore, their future pricing. They measure a large assortment of data such as cost of care, likelihood of disease, probability of use resulting from accidents, etc. These companies have years and years of data to improve their accuracy of assumptions leading to their pricing. However, the wild card with zero data to analyze is the complete unpredictability that 'Obamacare' might have on their business.

It creates a potentially tremendous unknown that has to go into their tried-and-true formula. There are no data points telling them how to predict their future cost, because nobody really knows how much it is going to cost.

So are insurance companies adapting, and what is the impact to employers?

As a smart businessperson, what would you do? Lowering rates in an uncertain economy never happens. Essentially, you have two choices: Begin to build a 'war chest' to protect yourself against the future unknown or continue business as usual and simply meet tomorrow's challenges when tomorrow comes. This was, of course, a rhetorical question, but one that has a serious ripple effect because every dollar that goes into a war chest is one dollar that goes out of circulation from our economy.

Now how many other industries, companies, sole proprietorships are reacting the same way with their capital for the similar core reason: an uncertain economy? When capital exits circulation, the economy slows.

There is no greater or lesser wealth or money on this planet today than there was in 2007. As a visual example, if one were to look at Earth from space, and take 'before' and 'after' photographs, it would look the same in 2007 as it does today. There were no aliens that came to Earth and left with the planet's wealth in 2008.

The flow of capital is the life's blood of any business and any economy.

When capital flows like a river, businesses thrive like reeds on the river banks, when capital flows like oozing lava businesses suffer from atrophy — it is that simple.  All the dollars and financial resources that were on this planet in 2007 have not left the planet. They have just stopped flowing through our economic streams. This is either because of dams being built or streams being redirected to foreign countries or reservoirs.

How will employers be affected and how will they react?

They are going to have increased costs and increased overhead. Employers have three choices of how to handle the increases coming from the health insurance sector. They can pass them along to employees by asking them to participate more in their own health insurance through company plans, or the company can absorb the increase and try to pass it along to its customers. There is one other choice: avoid an increase in cost by decreasing benefits.

What is the outlook for the future, and how will our economic climate affect that outlook?

'Jobs, jobs, jobs.' This has been the battle cry from all corners of the nation and from all walks of life. However, for a job to exist or be created, an employer or a business of some kind must exist. That business will have shareholders and/or owners. That business must have a need followed by a willingness to hire. That having been said, let's take a look at our climate:

1) Banks lending with considerable more restraint to not lending at all

2) Threat of higher taxes and of 'unknown' amounts

3) In California, new regulations giving employees more rights to unionize or threaten to increase the cost of doing business in an already suppressed economy leaving little room to pass along increases

4) Regulatory enforcement from various agencies, especially the Occupational Safety and Health Administration, becoming more present that ever. In fact, in our firm of insurance brokering and risk management, defending clients from O.S.H.A. has been the fastest growing part of our practice.

Sergio Bechara is president and CEO of Millennium Corporate Solutions. Reach him at (949) 679-7120 or [email protected]

It's a reality of business today: many of the products sold in the U.S. are part of a global supply chain. There is even a debate surrounding what percentage of a product has to come from the United States in order to be labeled "Made in the U.S.A."

"Unless they are very small, most manufacturing and distribution companies in the U.S. are involved with at least one other country," says Debra F. Scalice, vice president, Millennium Corporate Solutions.

"Importing from China alone has increased from $109 billion in 2001 to $365 billion today — that's huge; almost a 300 percent increase. Obviously the removal of U.S. manufacturing jobs has had multiple impacts, and among these is increased international risk," Scalice adds.

Unfortunately, she says, many U.S. companies are not fully cognizant of the consequences that may occur if they are not covered properly while conducting business with and in other nations.

Smart Business asked Scalice about some of the exposures businesses face and what they can do to minimize them.

Why is international risk such an important topic right now?

Many U.S. manufacturers are fighting to stay alive and they are often resorting to smaller, niche markets, leaving their old product skews behind and innovating new products or parts, which are imports. They must change or face extinction via lack of competitive price points. Nearly all U.S. companies are involved to some degree with importing or exporting. All too often, U.S. companies think they are protected from various liabilities when in reality they are not. It is easy to misinterpret your coverage. Countries have very specific mandates about the types of coverage you need to have and who is legally able to provide that coverage — Mexico is a good example. If you don't have a Mexican insurance company and something goes wrong, you're going to jail.

What are some of the risks involved with property exposure?

Typically, international property exposures are similar to domestic exposures. You need to know where the property is located, whether there are any nationally mandated coverages, availability of coverage subject to increased hazards, if the property is adequately covered while in transit, and if you are using the shipper's coverage or purchasing your own.

Are there any time constraints regarding the arrival of your property? What if the goods arrive at the harbor and half of the product isn't there? Or, has the product been substituted using trickery? What level of risk are you prepared to take on yourself? On the other hand, if you are exporting, what happens if the companies you are exporting to owe you money and disappear? Can you handle the financial loss or will you need credit insurance?

What key factors about liability exposure do companies need to be aware of?

If you're manufacturing in the U.S. and your policy says you have worldwide coverage and protection, don't let that lull you into a false sense of security. It probably means you're only covered for lawsuits initiated in the U.S. Let's say you sell something in Europe and someone gets hurt. You think you have worldwide coverage, but if you don't have proper international liability in place, there could be terrible financial consequences.

Liability exposure for importers is another consideration. There are many domestic carriers who are not interested in covering imported products. So if you're an importer and something goes wrong with the product you imported, you will be held accountable, as there is no domestic manufacturer to seek financial restitution from. It is very difficult to sue in other countries, which are often 'developing.' Who will you sue in that country? Are they even liable according to their laws? What if the products you're bringing in and selling to your clients start to fail? This is a nuance of international business you can't insure for, but you have to contemplate the risk.

What are some considerations for traveling overseas for business?

In today's world, you do not want to be walking around a foreign country without proper risk assessment and coverage. Let's say you're a salesperson who travels to London for your boss; you and your boss decide you should live there temporarily. The employer needs to cover you for workers' compensation in that country — it's a human resource issue. Or let's say you're the CEO of your own business and you've excluded yourself from workers' compensation insurance. You go to Europe and something happens to you — you have a car accident or a health event, or a political act takes place. Who will pay to bring you back to the U.S.?  Kidnap and ransom are also real concerns. If you are an American traveling abroad, you are a target. There are hotter spots than others in terms of exposure, but it's actually quite common and happens all over the world. For any executives who are traveling, you need to ensure that risk management techniques have been employed to help assure your safety and that the right coverage is in place.

How can companies ensure that they are protected properly?

Talk with your international attorney and a diligent insurance broker who will show you how to protect your interests. They will help you determine your own risk tolerance, where you are exposed, and what needs to be covered. Seek a broker familiar with international risk who will know the insurance vehicles available to cover international risk. Equally important, the broker will help you understand what is not covered. This is a very dynamic and fluid area so it's important to keep in touch with your broker on a regular basis to ensure you are properly covered at all times.

DEBRA F. SCALICE is vice president, Millennium Corporate Solutions. Reach her at (949) 679-7139 or [email protected]

The construction industry has slowed along with the economy, but it won't be that way forever. And as things start to pick up, more projects will be at least partially funded by the federal government.

As a result, construction companies need to begin preparing now to be in a position to garner the surety bonds they will need in order to bid on public works and federal government projects, says Owen Brown, senior vice president at Millennium Corporate Solutions.

"The smart contractor will begin preparing today for the turnaround," says Brown. "With the economy as it is, some people are hesitant to do this now because they say there is no work. But now is the time to do it so that when there is work, you are ready. The companies that have done well over the years have done so because they prepared in the down times."

Smart Business spoke with Brown about why construction companies need to prepare themselves with a line of credit for surety bonds and how construction firms can position themselves for bond approval.

What is a surety bond?

Surety is different from insurance. The insurance company indemnifies the insured from losses for covered exposures specifically outlined in the insurance policy for a premium based upon the contractor's claim experience and potential exposure to loss.

The principal (contractor) who pays for the bond premium, which is based on his or her credit and financial strength, indemnifies the bonding company from loss. The bond forms, unlike the insurance policy, are often prepared by the government, municipality, or owner and make the contractor and surety company responsible for the bonded contract completion, lien free. All bills must be paid in full by the contractor and/or the bonding company before the bond is exonerated.

If the surety is served with a claim or lawsuit for unpaid bills or failure to complete the contract, the contractor, at his or her own expense, defends the surety from potential loss.

What can a company do to begin preparing to apply for a surety bond?

You need to establish a good solid outside management team. Identify a surety representative who has experience putting bonds together on federal projects, who knows what forms are needed and who knows the process of the federal government. In addition, you should have a CPA firm knowledgeable about construction contracts and familiar with surety company requirements. The financial report — its format and method of preparation — is a very big part of the presentation to the surety and the surety's decision to go forward with the contractor. You should also have an insurance agent who knows what insurance exposures you have when you undertake work for federal reservations and for cities and counties. Finally, you should have an attorney to consult with because, as these contracts grow, they become more complex.

Does a company need to provide a lot of information to a surety representative?

Yes, because he or she must determine if you have the experience and financial strength to do the work. The construction company will need to provide the resume of the owner and information on projects that the company has completed, including the project owners' references. The surety representative will also need a list of key personnel, because if you are dealing in construction and you want to grow, you need good, experienced people. Obtaining a bond is a credit operation. Financial strength is important and the contractor will be asked for financial statements from past years as well as current financial reports, including a personal balance sheet.

You will also need to provide information about your insurance program, simply because the representative wants to make sure your family is taken care of if something happens to you. Last is a bank line of credit — how much the company can borrow. There can be hiccups in any construction project, and a bank line of credit can help you get through a crisis or a slow pay situation.

A line of credit for surety bonds can be established within a reasonable time frame if the construction firm is prepared. Preparation prior to a bond requirement is best for the contractor and the surety.

Is the process expensive?

Everything that the surety representative does to build the file and acquaint the surety with the company's operations is done at no cost. The only time there's a charge is when the representative writes a performance bond or payment bond on a contract. When you're bidding a job, if there is a bid bond required, there is no charge for that. Only when you get the contract do you pay.

What would you say to a contractor who has no interest in pursuing federal contracts and says he will never need a surety bond?

Contractors, especially in tough times, have to be able to make adjustments. If you've been building houses for the last 10 years, and suddenly there are no houses to build, you need to stop looking for houses to build.

With the way the economy is being restructured, most of the state contracts that we're seeing, such as public works for streets, roads and highways, are partially or completely federally funded, which means federal regulations will rule. As the state of California struggles, it is relying more on federal funds, and the federal government is getting more involved in state and local contracts. Some contractors say they don't want to work for the federal government, but no matter who they work for, they've got to realize that the federal government holds the purse strings for a lot of contracts, and it requires bonds.

Additionally, people are asking for bonds that they may not have asked for in good times. Banks previously would loan money on a construction project with no bond required. Now, when they are loaning money to an owner, they tell that owner that he or she needs to get a bond from the contractor.

By getting things in order now, you'll be prepared to bid on contracts requiring bonds.

Owen Brown is senior vice president at Millennium Corporate Solutions. Reach him at (949) 679-7105 or [email protected]

For organizations with loss-sensitive casualty programs, posting collateral has become an increasingly burdensome and expensive requirement due to volatile economic conditions.
"Over the past few years, the costs and risks around collateral have gone up considerably," says Michael Gruetzmacher, director of Collateral Advisory Services, Aon Risk Solutions. "The impact of rising collateral costs can be a severely deteriorating factor to a company's total cost of risk."
Fortunately, an innovative casualty product requiring zero-collateral is available in addition to several opportunities to improve a company's current collateral situation.
Smart Business spoke with Gruetzmacher and Ralph W. Sloan, senior vice president, brokerage, Aon Risk Solutions, about how companies can manage collateral issues and how some companies may be able to avoid them.

Why is collateral required in a large deductible casualty insurance program?

Insurance companies require collateral to manage the inherent credit risks associated with high-deductible casualty insurance programs that come from the client's obligation to reimburse the insurer for obligations within its deductible.
While the high-deductible program creates many benefits for clients by minimizing costs and improving cash flow, these benefits can be offset by rising collateral costs. These rising costs manifest via rising letter of credit (LOC) fees, as well as the opportunity costs of tying up capital, limiting borrowing capacity and the ability to invest in strategic growth opportunities.

What factors influence insurers when determining what a collateral obligation might be?

Insurers are influenced by how they view the loss experience of the client, the go-forward structure of the program and how that structure may include retained losses, and how the insurer perceives the client's credit risk.

How do companies address the collateral challenge while optimizing their insurance spending?

Traditionally, there are three ways to attack collateral issues:
■ Aggressively manage claims pre and post loss
■ Restructure the program to best balance collateral costs with other corporate needs
■ Strategically negotiate the amount of collateral held by the insurers to reflect the true underlying credit risk
The first opportunity is finding ways to improve the loss experience. Risk management professionals should review their risk control programs to minimize losses, aggressively manage open claims to ensure reserves are appropriate and close losses faster.
Second, insurance brokers and insurance companies need to work with clients to determine the right program structure. This includes a financial review to determine if retaining less or more risk, in favor of paying lower premiums, makes the most financial sense. Modeling needs to be a highly individualized process based on the client's financial situation. Considerations include the cost of capital, cost of collateral and the overall objectives of a company's risk management program.
The third part is helping clients with credit risk advocacy as the risk management professional negotiates collateral. The expert should make sure the insurance company understands what's going on with the client from a credit risk standpoint, and understands its true credit picture. Then, the expert uses that information with robust benchmarking analytics to negotiate the best possible collateral outcomes.

How can companies reduce collateral obligations through minimizing losses?

Insurance brokers must understand how their clients prevent claims and also manage those claims that do happen throughout their full lifecycle. Working with their client to implement the right safety programs and preventing losses from happening in the first place will have the clearest benefit from a collateral standpoint. Not only will preventing losses have a direct cost-savings benefit, collateral is not needed to secure losses if losses don't happen in the first place. Furthermore, from a post-claim standpoint, it is important to stay on top of third-party administrators and work with them to close out claims as fast as possible. There is a lot of money left on the table in this area.

What other advice can you provide to companies struggling with collateral obligations?

As companies think about collateral, they should develop an exit strategy. Working with a professional can help companies perform transactions such as a program close-out and loss portfolio transfers as a way to eliminate collateral obligations. These transactions can make a lot of sense for companies that have a high collateral cost and place a lot of value on getting that collateral back.

Is there a zero collateral solution?

It's very apparent that companies don't like to post collateral, but they enjoy the benefits they get from high-deductible programs. The Aon Zero-Collateral Deductible Program is a high-deductible casualty program structured in a way that companies wouldn't need to provide collateral. Instead, they pay a one-time, upfront fee based upon their creditworthiness, which eliminates the collateral obligation for the life of the program. The company saves substantial money over time and frees up capital while removing all risks associated with traditional collateral. The program eliminates risks that companies typically face with collateral, such as untimely adjustments from the insurance company. The program is best suited for those with expected annual losses of up to $5 million and a credit rating of BB or above. Even if a company is not rated or is private, it may be acceptable for the program.

Michael Gruetzmacher is director of Collateral Advisory Services with Aon Risk Solutions. Reach him at (312) 381-4472 or [email protected] Ralph W. Sloan is senior vice president, brokerage, Aon Risk Solutions. Reach him at (314) 854-0807 or [email protected]

Steve Grane, Partner, Millennium Corporate Solutions

When buying or renewing any type of insurance for your business, you have to strike a balance between price and coverage.

"Since the recession, so many buyers are making decisions about insurance based on price alone. They know they need insurance, so they take the lowest-price option, many times sacrificing coverage or service or both," says Steve Grane, partner, Millennium Corporate Solutions. "The problem comes in, however, if something happens and they're not covered. Then there can be all kinds of negative consequences to deal with."

Grane says that the goal of a good broker or agent should always be to get his or her client the best coverage at the best price.

"If the broker or agent doesn't have your best interests at heart, you could really get burned," he says.

Smart Business asked Grane for tips on how buyers can get the most bang for their buck when making insurance purchasing decisions.

What should a buyer do if his or her rates have increased to a price that is higher than expected?

The first instinct may be to go price shopping. But you have to think about your risk at the present time. Is it different than it was a year ago? Is it going to become greater over the coming year? Each situation is different.

You then have to weigh the premium increase and total cost against how much it will cost if you have a claim that's not covered. Talk with your broker or agent. There might be places where you can raise your deductible.

You should also see what other options are available in the market. Get three bids. Make sure the bids are for the same coverage you already have. Request a face-to-face meeting. You can usually determine rather quickly if the person is legitimate. If the person is ethical, he or she will lay out the premium costs and all the coverages in a way that you can easily understand. Ask for the names of people you can call to assess how responsive this person is. You want someone who is accessible — someone who will return your call within a few hours, not a few days.

What else should the buyer look for when comparing bids?

You have to compare apples to apples. Ask your current broker or agent to give you a comparison sheet on the main coverages. Ask him or her to write out what is covered and what the limits are. Then ask others who are bidding to do the same. For example, say you are responsible for homeowner association (HOA) insurance. The total insured value on the declarations page is $10 million. The agents or brokers who are submitting bids should come in and take a square foot inventory and then provide you with a cost analysis of what it would cost to reconstruct the property per square foot. They would use this as a guideline to come up with total insured value. In some cases, it may be determined that you are underinsured.

How can being underinsured cost more in the long run?

Let's look at the liability that comes from being on the HOA board. There are many different directors' and officers' liability policies out there. You can get a very inexpensive policy as part of the main policy, but it's not going to cover much. For about 10 percent more, say around $1,000, you can get 60-70 percent more coverage to protect board members against things such as wrongful acts, sexual harassment, nonmonetary claims and spousal liability. Board members are volunteers, and if a homeowner decides to sue, even for nonmonetary claims, it can end up costing the volunteers a great deal of money out of their own pockets if they are not adequately insured.

If coverage levels are comparable and it comes down to price, what next?

Service is just as important as price. What would happen if you actually had to file a claim? How professionally will the claim be processed, and how swiftly? Is the insurance company A-rated on AM Best? Is the adjustor easy to reach?

How can the buyer be sure that the claims will be processed quickly?

You can't know for sure until you have a claim. That is where the importance of the relationship with the broker or agent comes into play. If you find out the hard way that the company with the lowest price is not responsive, it can cost you thousands of dollars of your own money trying to fix problems while you are waiting for a claim to be settled.

How often should insurance needs be reassessed?

Talk with your broker or agent at least four or five times throughout the year, and always at renewal. This way, if there are any changes, or anticipated changes, the broker or agent can ensure that your insurance coverage reflects the changes. You should view your broker or agent as a partner. They are like football officials. At the worst games, there are all kinds of complaints about the calls; at the best games, you don't even realize they are there.

STEVE GRANE is a partner with Millennium Corporate Solutions. Reach him at (949) 679-7131 or [email protected]