Archives for November, 2016

Managing Insurance Costs for Small Businesses

Whether you just started your small business or have been operating for years, cutting costs is a perpetual conversation.

Small companies facing the rising costs of doing business need to remain vigilant in uncovering areas where expenses can be marginalized or reduced if they want to keep their doors open. Entrepreneurs and business managers must take a hard look at balance sheets to determine what is necessary versus what constitutes frivolous expenditures.

Still, the question remains, what if necessary expenses are bleeding your small corporation or sole proprietorship dry? Is there any relief to be had when it comes to the unavoidable business expenses that cut into profitability margins?

Insurance is an expense that comes from the bottom line. An insurance policy is also one of the only products a business owner may buy with the hopes of never using. For this reason, it is often viewed as a necessary evil and a negative product. This is likely a contributing factor to business owners avoiding conversations with agents about their coverages and policy premiums.

Reviewing and analyzing insurance policies is the first step in determining cost savings measures while filling potential coverage gaps. Here are three ways that business owners can manage their insurance effectively to reduce costs and control rising business expenses.

1. Review Deductibles

Sometimes policies are issued with deductibles that have been selected by the agent. Common deductibles range from $250-$1,000, although higher deductible options are available. Your deductible is the amount of a property loss that you retain in the event of a claim. In other words, if you have a $100,000 loss to your commercial building, and you carry a $1,000 deductible, you may receive the cost to replace the damaged property at less than the deductible amount (if you have insured the building at a replacement cost valuation), or $99,000.

Because taking a higher deductible reduces the occurrence of small claims payments by the insurance company, insurers will offer a policy credit for the policyholder’s assumption of additional risk in the event of a claim. Likewise, if you elect a very low deductible, you may be receiving a policy debit for the opportunity to transfer nearly the entire loss to the company.

When you are considering your deductible amounts, it is important to evaluate what increasing the deductible will save in relation to the increased amount of self-insured loss you are assuming. If increasing your deductible from $500 to $1,000 only saves $50 annually, it might not be a good risk management tool to employ since you will have to remain loss-free for 10 years for the annual premium savings to equal your increased deductible costs at claim time.

Additionally, a proper evaluation of your business’s cash flow and reserves needs to be taken into account before deductible changes are made. You may be able to save hundreds, or even thousands, of premium dollars by taking a $5,000 deductible; however, if you cannot likely manage to cover $5,000 of a loss out of pocket, it is probably not a good idea to assume this much risk. Also, you need to be aware that you will need to cover all small claims under your deductible out of your own pocket, which can also put a strain on your businesses cash flow. If you are in a position to manage a higher deductible at claim time, you can save significant premium dollars; however, these changes should only be made after careful consideration and adequate discussion with your agent.

2. Are you BOP Eligible?

In an effort to provide streamlined insurance underwriting and prepackage policies for homogenous types of risks, many insurance companies have rolled out BOP (Business Owners Policy) products. BOPs are an effective solution for businesses who fit within a specific eligibility criterion. BOP rating can sometimes be more cost effective than a standard commercial package policy, and they include property coverage for your assets and liability for your business operations and products. Since many of the same exposures exist from one company within a given industry to the next, BOPs can provide coverage for the typical needs of the companies which qualify for this type of policy even though these companies may differ drastically in size.

In addition to sometimes providing more cost effective rating, BOPs also include some valuable coverages that are built into the policy. These can include things like business income coverage, sub-limits for outdoor property and signs, automatic equipment breakdown, etc. Many of these coverages need to be added separately when you purchase a commercial package policy, and these additional line items can begin to add significant premiums to your annual insurance costs. BOPs are often a good place to look in order to enjoy a cost effective policy with valuable add-ons that can benefit your business.

3. Ask For Another Quote

There is nothing wrong with asking your agent to provide you with another quote from time to time. While it is not in your best interest to shop your insurance every year, there is a benefit to taking a look at other companies from time to time. Be aware, however, if you move your insurance to a new company annually, insurance carriers can become reluctant to write your coverage or apply more aggressive pricing to your account. When an underwriter asks for your company’s loss runs, they will see that you have not remained with one company for any significant amount of time and will assume they too might lose your account after just a short amount of time. It is often into the second year of writing coverage for a business before an insurance company will even break even. It can take several years to realize a profit, so if the underwriter believes the transaction will likely be short term.

When an underwriter asks for your company’s loss runs, they will see that you have not remained with one company for any significant amount of time and will assume they too might lose your account after just a short amount of time. It is often into the second year of writing coverage for a business before an insurance company will even break even. It can take several years to realize a profit, so if the underwriter believes the transaction will likely be short term, there is less incentive to get aggressive when determining the amount of policy credit they may be willing to apply to your account.

At the same time, loyalty is appreciated and often rewarded and if your business proves to be a favorable risk. If you are paying premiums promptly,and have remained claim free, you might not have to move your coverage to receive better pricing consideration on your policy.

Underwriters will often be willing to add policy credit after the account has shown itself to be a good risk. Retaining existing clients is more cost effective than producing new ones and as a policyholder, you can take advantage of this reality. At the same time, if you have been with the same insurance carrier for many years and never received a quote from another company, it is advisable to ask your independent agent what other options they may have for your business.

Managing insurance costs takes a proactive approach and open dialogue with your agent. Allowing your policy to go without regular review is not the most advisable practice from either a pricing or coverage standpoint. It is not uncommon for policyholders who choose not to review their coverage to be paying a higher price for coverage that they don’t want or need. In the worst case scenario, a business owner could be paying a premium for a policy that is failing to cover their actual loss exposures while providing coverage for risks that are not present in their business.



With Promises For Infrastructure, Regulations, Trump Sets Bar High For Shippers

In a year of disruption that has ranged from container shipping consolidation to radical changes wrought by e-commerce, few shippers and transportation providers planned for billionaire businessman, reality television star, and Republican nominee Donald Trump winning the US presidential election.

Like the political experts and pollsters who saw Democratic candidate Hillary Clinton as the solid favorite to win the presidency, shipper executives — even those who supported Trump — planned for a continuation of President Barack Obama’s legacy. The Trans-Pacific Partnership might have been shelved under a Clinton administration after the former secretary of state flip-flopped on the issue, but free-trade policies and regulations already on the books likely would have survived.

Yet shippers now face a brave new world in which they try to gauge whether the Trump administration will make good on its promises to deliver $1 trillion in infrastructure investment; reset — or withdraw from — trade deals, most notably NAFTA; and repeal regulation or at least curb new rules. In addition to the challenge of assembling a team to implement these goals, Trump faces strong corporate pressure to avoid a trade war or do anything too radical to hurt already fragile US consumer spending. The reworking of trade deals is onerous, and politicians generally support freight infrastructure spending until they have to figure out how to pay for it — typically a career-killing vote to raise fuel taxes. Trump’s foreign policy also will determine the direction of trade as sanctions on Iran, Russia, and Cuba are now in play.

Even so, Trump, a former Democrat who has consistently defied expectations, may be able to draw more concessions out of trade partners, give shippers and transportation providers some regulatory relief, and rally a much-needed improvement in the roads, highways, and ports that shippers depend on to move their goods predictably, efficiently, and without higher costs.

Meanwhile, US-flag proponents say Trump’s emphasis on national security and growing jobs could boost US shipbuilding and strengthen the Jones Act. More traditional free-market conservatives in the Republican-controlled House and Senate, however, could marshal curbs on the maritime law requiring US-built ships manned by Americans to move oceangoing goods within the United States.


Source: JOC

Builders Risk Insurance: 8 Things You Need To Know

Coverage for insureds with construction exposures beyond the limited parameters of a standard commercial property form is accomplished through the use of the simplified language builders risk form and endorsements.

The policy may be used to cover the interest of the building owner, the contractor, or both, as their interests may appear.

Here are eight important facts about builders risk insurance that contractors, building owners, agents and brokers should know.

1. Builders risk coverage is written for a minimum one-year term to cover a new building or structure under construction or an existing structure undergoing additions, alterations or repairs.

2. The rules in the Insurance Services Office’s (ISO) Commercial Lines Manual state that policy inception should begin no later than the date that construction “starts above the level of the lowest basement floor” or, if there is no basement, the date construction begins.

3. The rules permit pro rata cancellation when construction is completed, whether insurance on the completed structure is rewritten in the same company or companies or not. If the policy is cancelled before the structure is completed, the general cancellation provisions found in the common policy conditions apply.

4. Builders risk coverage can be written on exposures during construction that may not be eligible for certain coverages when occupied. The rationale is that buildings eligible for builders risk coverage are commonly unoccupied; therefore, eligibility criteria that depend on occupancy or use don’t apply during the course of construction. Examples of such exposures include boarding or rooming houses (with a maximum of four units), dwellings and farm properties.

5. ISO’s Builders Risk Coverage Form, CP 00 20, is the basic avenue to builders risk coverage in the simplified language commercial property program. The amount of coverage is based on the value of the building upon completion (including the value of permanent fixtures and decorations). Insurance on that value is provided from the outset of construction until coverage ceases.

6. Covered property (for which a limit of insurance must be shown in the declarations) includes the building or structure while in the course of construction and extends to foundations and certain items of property intended to become a permanent part of the building while located in, on or within 100 feet of the described premises.

7. Insurers consider builders risk coverage to cease when the insured occupies the structure because builders risk rates don’t contemplate the increased exposures of premises that are occupied.

8. ISO also provides another Builders Risk Coverage Form, IH 00 70 12 13, which is designed to provide broad coverage for the property that building contractors need to insure: building materials and supplies, fixtures, machinery and equipment to service the building.


Source: Property Casualty 360

The Origin Of Shipping And Insurance

Shipping is one of the oldest businesses in the world. Risk management and insurance are also equally old business.

All are closely linked with one another. In fact the development of insurance took place in support of the shipping industry. In the early days the ship-owner, trader and ship-captain were a single entity. A rich influential person got a ship built, procured some commodity that is readily available in his area and then sailed to another place for business. He would normally barter the goods in exchange for commodity available in the new land. Gradually gold and then coins and currency became the medium of exchange. Fortune favors the brave.

The pioneer in shipping gradually became a rich man. He was not anymore ready to undergo all the rolling and pitching at sea. He employed a trusted man as the captain of his ship. He still remained owner of the ship and the cargo. However, during those days with no radio telecommunication there was no way for him to know anything until the ship was sighted on the horizon again. Sometimes the ship was never seen again – either lost at sea or hijacked by pirates.

Another businessman came with a bright idea. He agreed to share the risk in exchange for a token payment. Because, he shared similar risks with few other ship-owners, he managed to keep the premium low and thereby flourished his business. This is how the concept of hull insurance took birth in this world. However, it was also necessary to know “how good the ship is and the risk it represents”. This we will deal at a later stage.

With the passage of time more changes took place. The ship-owner was no more the cargo owner. The ship-owner placed a ship and accepted cargoes from different traders. The cargo owners also looked for similar security and there came the concept of cargo insurance. Hundreds of years later the ship-owners came across claims from others for damages caused by the way of operation of the ship. Sometimes the claim was too big to handle by a single ship-owner. The ship-owners got together and created a common fund to protect themselves from such claims. This became the eventual protection and indemnity insurance. Because of being mutual in nature, they were called P&I clubs.

An important group of organisations that has considerable influence on the design, construction, equipment and safety of ships is Classification Societies. Classification is defined as “a division by groups in order of merit” – and this was what was precisely attempted in the early days of ship classification. It was done for the benefit of ship-owners, cargo owners and underwriters in order to ascertain the risk a particular ship represented. The origin of classification is linked with the name Lloyd, and we shall discuss the history.

It was customary in the seventeenth and eighteenth centuries for merchants, shippers and underwriters to meet in tea shops/ coffee houses in London to discuss business. Ship lists were circulated in these establishments, which contained information concerning ships; and these lists were particularly helpful in providing underwriters with information concerning the degree of risk involved in insuring the ships and their cargoes.

Amongst these coffee houses was one owned by an enterprising man called Edward Lloyd. His coffee house was originally in Tower Street but he later moved to Lombard Street (I think there is now a branch of Sainsbury, supermarket chain stores located there). Lloyd provided a list or bulletin about ships as far back as 1702 and after being withdrawn for a time it was issued again in 1734 and has continued to be published the present day as Lloyd’s List (perhaps the oldest newspaper being published today). It is still published but only the electronic version. The last printed issue was published on December 19, 2013.

Another interesting development in shipping took place when the housewives of Bristol area approached their MP Samuel Plimsol to do something in the parliament to save seafarers’ lives from the greedy ship-owners who would load the ship with cargoes to such an extent that ships could not remain afloat at sea. The first load line (1876) act was named after the MP as Plimsol Mark Act.

One of the most remarkable safety improvements came through radio-communication by Marconi. He was an Italian but developed his first radio transmission and reception facility in the UK in 1897 on a boat called “Electra” given to him by British government. As time went on, the provisions relating to information about ships got more formalized and eventually a Register was published.

Today this register is the number one reference for shipbrokers, charterers and others keen to know about the status/ condition of the ship. Originally business of classifying ships and insuring them went under the same roof but eventually the two activities became completely separate. Both activities took the name of the coffee house proprietor. The Classification side took the name Lloyd’s Register of Shipping (the oldest classification society). Founded in 1760 to examine merchant ships and classify them according to their condition, today the organisation’s expertise and activities extend far wider than shipping field – shore based industries including steel mills and oil refineries, offshore explorations and installations.

Today Lloyd’s Register is an independent authority, non-profit making, and relying entirely on fees charged for surveys and other services rendered. It is controlled by a Committee representing ship-owners, ship and engine builders, the Institute of London Underwriters, the Royal Institute of Naval Architects and Shipbuilders. The national committees also include similar national bodies.

Other classification societies also follow the pattern set by LR. They are like independent standard institutes having common rules. A ship or an installation remains classed so long it meets the standard. Because, they operate without any bias, they are equally trusted by ship-owners, traders, underwriters and even national administrations who delegate a lot of statutory survey and certification to them. However, it must be understood that functions may be delegated to classification societies but administration as Party State shall always bear the responsibility.

We shall now discuss a very important aspect of shipping and insurance. It is to be noted that early shipping, insurance and classification developed on its own without any legal constrains. Those days there were no national nor international laws governing those activities. They were self regulatory and it worked wonderfully well. By making necessary Act of Parliament, the British Government formally legitimized the working of Lloyds. This is why London still remains the centre for resolution of most of the legal disputes and arbitration.

With the development of time shipping became the most international business in the world becoming subject to international conventions and protocols. Most of the early conventions were drafted by CMI and adopted through diplomatic conference called by a lead nation. After the World War II and development of the UN network, most of the maritime conventions are adopted through a number of UN agencies such as UNCTAD, UNCITRAL, ITU, ILO and IMO.

Today the International Maritime Organisation (IMO), a specialised agency of the UN, is the international guardian of safety and security of operation of ships and protection of the marine environment. However, neither the UN nor any of its agencies can enforce the international standards for ships around the world. This aspect is left with sovereign nations. It is the duty of the Party States to transpose the provisions of international conventions into national legislation and enforce them over own ships (wherever they may be) and other ships within their jurisdiction. This measure is known as Flag State and Port State jurisdiction.

Now we shall discuss a little about development of port facilities. Remember, in the early part of this paper we said about some of the ships never returning to owners. They either went down due to perils of the sea or taken over by pirates. So, port facilities needed to provide shelter from both weather and pirates. However, it was not necessary to go far inland as pirates would not chase that far being mindful of their return journey. Ports were based on hinterland – either in proximity of raw materials or in proximity of large population to deliver the consumer goods. Natural locations were sheltered basins or mouth of the river going to sea.

Port facilities would normally develop a few miles upstream where depth of water is still sufficient to navigate safely. Immediately after that there would be evidently a bridge across the river to make it a hub of trading activities. London, New York, Calcutta and Chittagong are examples of such ports. In today’s world of economy of scales, main-line global operators have big ships touching key points around the world. So, port and transhipment facilities are developing at key junction points like Singapore, Hambantota (Sri Lanka) and Algeciras (Spain).

However, ports are not as well regulated as shipping is. There is no separate UN agency to deal exclusively with port matters. ILO and UNCTAD have developed a number of guidelines that are widely followed by sea-ports all over the world. Ports provide the shore-based facilities that shipping requires to operate. This is why many international shipping regulations also extend over ports. All marine operations within the port areas have to comply with SOLAS and COLREG.

In respect of protection of marine environment, ports have to meet the MARPOL requirements. In addition to national contingency plan for combating accidental pollution, ports are required to have their own contingency plans. Ports have to work hand in hand with maritime administration for compliance with ISPS Code. Handling of all dangerous goods within the port areas is done in conformity with IMDG Code. IMO has developed training standards for marine pilots (for handling ships within port areas) and IMO wants ports to have efficient VTS.


Source: Hellenic Shipping News

5 Reasons You Need Cargo Insurance For Your Import And Export Goods

Businesses make money by selling products. If your business imports or exports its products, you’re investing in your company every time you ship cargo. It’s surprising how many businesses don’t protect that investment with cargo insurance and pay heavily for it in the end.

Whether importing or exporting, using air freight or ocean freight for your international shipping, marine cargo insurance covers loss and/or damage of cargo while it is in transit between the points of origin and final destination.

Many try to save a little money up front by not insuring their cargo, but here’s just five of the many reasons why that’s a bad idea.

1. Reduce exposure to financial loss.

If you’re an exporter who has not been paid for the goods at the time of shipment, or an importer who has paid for all or part of the goods prior to receiving them, you run the risk of suffering a financial loss if the goods are lost or damaged during transit.

2. General Average – Expedite the release of your cargo.

You may be required to post a bond and/or cash deposit in order to obtain release of your cargo following a general average – even though there was no loss or damage to your goods. By purchasing insurance, your insurance company assumes the responsibility and expedites the release of your cargo. General Average is an internationally accepted principle where if certain types of accidents occur to the vessel, all parties share in the loss equally.

3. Contractual Requirement

Your sales contract may obligate you to provide ocean cargo insurance to protect the buyer’s interest or their bank’s interest. This is especially true when selling goods CIP or CIF. Failure to do so cannot only subject you to financial loss if there is loss or damage to the goods, but non-compliance with the terms of your contract with the buyer can lead to loss of sales and legal problems.

4. Coverage for limited carrier liability

The carriers, by law, are not responsible for many common causes of loss that occur in transit (for example, acts of God, general average, etc.). And, even if they are liable, carriers’ liability in the event of a loss is limited – either by contract in the bill of lading or by law. In most cases, you will only recover cents on the dollar from the carrier.

5. Have more control over insuring terms

Relying on the buyer’s or seller’s insurance may be a viable option, but you must be satisfied that the insurance has in fact been purchased and that the insuring terms, valuation, and limits provided by each insurer on each shipment are adequate to meet your needs. And, if there is a claim dealing with a foreign insurance company, perhaps in a different language, it can be time consuming and frustrating. If there’s a claims issue, you’re often dealing with courts in a foreign country.


Source: Universal Cargo