Business Insurance & Risk Management for Fed Gov Contractors

Transcription

1 Business Insurance & Risk Management for Fed Gov Contractors Presented to NCMA 21 February 2013

2 Six & Geving Insurance, Inc. 3,000+ Business Clients Business Insurance is 98% of what we do Local, Regional, National and International Clients Broad Market Access 40 Direct Insurance Contracts 15 Surety Contracts Responsive 99% of calls returned same day Our existing clients are our best advertisement ask them about us!

3 Your Presenter Chris Rea MILITARY Graduate of the USAF Academy Retired USAF Reserves (22 yrs) CONTRACTING F-15C Eagles at Langley, VA Task Lead NUMAS/N2A2S (Ciber under L-3/SY Coleman) NASBP Football Award INSURANCE / CONSTRUCTION VP of Surety for Six & Geving Insurance Commercial Lines Coverage Specialist Extensive Work with Gov Contractors Surety Insurance Construction and Non-Construction

4 Overview This is an Undergraduate Level Seminar Assumptions: You are involved in government contracting You are familiar with the purchase of Business Insurance and Risk Management Programs Topics: Federal Requirements Different worlds within Federal Contracting Federal Requirements vs. Realistic Programs Question & Answer

5 Why This is Interesting To Me? My Story Contractor Bond Guy (Construction) Insurance Agent to FGC s Lost in Translation

6 The Different Worlds Within Construction Non-Construction Supply Personal Services Non-Personal Services

7 Hard Construction Hard Insurance Environment Litigious Rules Based One-Sided towards the Government

8 Non-Construction Contractors Soft Insurance Environment Non-Litigious Rather fire you than sue you Unfortunately the insurance industry has not yet fully recognized this reality That is changing

9 Federal Requirements FAR Subpart 28 Basic Requirements (for most contracts) FAR Subpart 52 Contract inclusion terms There is a handout for FAR Subpart 28.3

10 FAR 28.1 and 2 Bonding Beyond the discussion today we ll talk about that at a subsequent meeting Normally related to hard construction only

11 Federal Requirements Contracting officer can always raise limits with clause WORK COMP Compliant with State (of work) and Federal Rules / Min EL limit $100,000 LIABILITY Bodily Injury $500,000 per occurrence Property damage none specified only special circumstances AUTO LIABILITY (in the US) including leased vehicles Bodily Injury $200,000 per person and $500,000 per occurrence Property Damage $20,000 per occurrence AIRCRAFT PUBLIC AND PASSENGER LIABILITY Bodily Injury $200,000 per person and $500,000 per occurrence Property Damage $200,000 per occurrence Passenger Injury $200,000 per pass (limits = 200k x number of seats) VESSEL as determined by the agency CARGO Required but at limits set by the contracting officer

12 Federal Requirements These are woefully inadequate A Telltale Hint from the FAR s (FAR ) Why is that? the Government is not ordinarily concerned with the contractor s insurance coverage Because the Gov t is: Generally Self-Insured Generally Uninterested in Risk Transfer Generally Confident they could Transfer Risk After the Event or Rely on Gov Immunities

13 So If That s Inadequate? What should I buy? Required vs. Desired Tell me what will happen and I ll tell you how much insurance to buy What Could Happen (worst case) What s Likely to Happen (probable case) What is the impact in each case?

14 Risk Management Decisions Business insurance is the one decision a business owner makes on an annual basis that is unlike all other purchase decisions. If they get it right, their costs might fluctuate a bit, but if they get it wrong it could mean the end of their business altogether. -Wayne Six

15 The Goose that Laid Good Risk Management First protects the Goose Identify Risks Avoid Risks if Possible (isolate the goose) Mitigate Known Risks (minimize damage) Transfer Risks Including use of Insurance If the Goose Dies

16 Cost vs. Premium Market Conditions + Claims Experience x Rating Basis = PREMIUM

17 Cost vs. Premium Market Conditions + Claims Experience x Rating Basis = PREMIUM Premiums + Deductibles + Costs of Uncovered Losses = TRUE RISK MGT COSTS

18 Cost vs. Premium % of Gross Receipts Market Conditions + Claims Experience x Rating Basis = PREMIUM All Business Normal Range (all lines of Coverage) 3% (Roofing Contractor) FGC Construction Premiums + Deductibles + Costs of Uncovered Losses = TRUE RISK MGT COSTS 1% (Insurance Agency) 0%

19 Cost vs. Premium % of Gross Receipts Market Conditions + Claims Experience x Rating Basis = PREMIUM All Business Normal Range (all lines of Coverage) 3% (Roofing Contractor) Premiums + Deductibles + Costs of Uncovered Losses = TRUE RISK MGT COSTS 1% (Insurance Agency) 0% FGC Services

20 Cost vs. Premium % of Gross Receipts Market Conditions + Claims Experience x Rating Basis = PREMIUM All Business Normal Range (all lines of Coverage) 3% (Roofing Contractor) Where are you? Premiums + Deductibles + Costs of Uncovered Losses = TRUE RISK MGT COSTS 1% (Insurance Agency) 0%

21 How Premiums are Developed Law of Large Numbers CLAIMS PREMIUM PLUMBERS (hypothetical) Assume there are 100 plumbers in Colorado Springs 4 will cause a leak each year w/ average claim cost of $40,000 There are 100 cities our size in the US (10,000 plumbers) So the average annual claim cost is $8,000,000 Premium for Plumbers is average $800 per plumber Plus Administrative Overhead and Profit (if any)

22 How Premiums are Developed Law of Large Numbers CLAIMS PREMIUM PLUMBERS (hypothetical) Assume there are 100 plumbers in Colorado Springs 4 will cause a leak each year w/ average claim cost of $40,000 There are 100 cities our size in the US (10,000 plumbers) So the average annual claim cost is $8,000,000 Premium for Plumbers is average $800 per plumber Plus Administrative Overhead and Profit (if any)

23 A Side Note About: Individually Rated Risks The Insurance Industry Is exempt from certain anti-trust rules They aggregate claims information for the actuarial science of rate making Some Companies Don t Fit Very large (5,000+ employees, $1B Rev) Very Unique Few (or none) other similar risks to aggregate These are rated on an experience of one Your premium = your potential claims + overhead

24 Strategies for Minimizing Costs Three broad concepts 1 st have proper coverage 2 nd - have no claims 3 rd Self insure as much as you re able

25 Ensure Proper Coverage What is the cost of an uncovered loss? Liability Property Auto Worker s Compensation Avoid the unanticipated uncovered loss Gambling with losses may be reasonable But only with your eyes open Count the cost if you re rolling the dice

26 Proper Coverage Basics Every Business that Operates General Liability Property & Mobile Property Auto Worker s Compensation Umbrella (higher liability limits)

27 Proper Coverage Peripherals Many Businesses Also Need Errors & Omissions Worldwide Coverage Extensions Directors & Officers Liability Employment Practices Liability Insurance Employee Dishonesty Pollution Cyber Liability Intellectual Property

28 Work w/ Good Agent Every Business is Unique With some common elements If we re not already your agent We d like to be your agent

29 Where Do We See Claims? CONSTRUCTION Normal Places Accidental Injuries Accidental Damage US Corps of Engineers Breech of Contract Construction Defect (note no fed SOL) NON-CONSTRUCTION Generally never see liability claims save occasional work comp or auto accident Some unfair business practices claims

30 Hiring & Firing Decisions The vast majority of serious claims arise out of a faulty relationship (bad apples) Poor hiring Delayed firing Poor sub relationship Poor prime relationship DECIDE: I will only work with good people! BAD PEOPLE create liabilities

31 QUESTIONS??? Please feel free to ask any questions you may have.

32 BACKUP QUESTIONS Can a Contractor self-insure? What kind of policy do I need to insure against an unfair business practices claim? What if a contractor works both inside and outside of government contracting does that change anything?