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...of clients. Agents, like other professionals, must demonstrate their knowledge...amp;O exposure that the insurance professional should deal with in fact-finding and at renewal. What about the exposure of an individual who’s a director for either type of corporation? The Personal Lines agent needs to be aware of the corporation’s coverage to pick up the exposure for this person. State laws vary, but often non-profit directors have less individual exposure than for-profit directors. In any case, if the corporation has no D&O coverage and the director is actively involved in decision-making, the agent needs to address this. D&O policies aren’t standard, and neither are the duties directors perform. Directors and officers often don’t realize their exposures or know the extent of the corporation’s D&O coverage and limitations. The agent needs to review the policy with both the management and the board of directors and have a discussion about the general differences among D&O contracts. INTELLECTUAL PROPERTY Patent, trademark, and copyright infringements are the main areas of intellectual property exposure. There are also various Personal Injury exposures related to libel, slander, defamation, violation of right of privacy, piracy, unfair competition, and title or slogan infringement. In some cases, directors and officers may be held accountable. The issue is more widespread than you might think: A recent market survey of a low- population Southwestern state found that about 150 businesses controlled more than 5,600 patents. Use of the Internet has worsened the problem. The ability to download information from World Wide Web can be an enormous exposure to the downloading party and the source alike. There are intellectual property exposures for those who’ve been infringed upon and those who do the infringing. Either way, there’s a long-term, complicated legal process for both parties and substantial legal expenses. There’ve been minimum estimates of $250,000 to $300,000 to take such a case to trial. Most carriers are very conservative about offering Intellectual Property coverage, and there’s no standard way to deal with the exposures. An agent’s best course is to know about the exposures a business faces and to be able to offer risk management and coverage options. At the very least, the agent should point out the exposures so the client knows the areas that lack coverage or for which coverage isn’t available. From an E&O standpoint, not discussing a problem until after there’s been a loss and the claim denied for lack of coverage will certainly tarnish the agency’s position. COMPANY SOLVENCY A wealth of articles, reports, and statistical studies tell us that an enormous number of companies and groups is vulnerable to insolvency. Inefficient operations, poor management, high loss ratios, low investment returns, automation problems, misguided marketing strategies, and poor reserving practices are just a few of the problems. Any one or combination of these can lead to disaster. In the past it was probably sufficient for an agency to check ratings in A.M. Best’s “Key Rating Guide” or a similar publication every year. Today there’s so much data available on demand and reaction time is so tight that ongoing ratings diligence is necessary. Many E&O policy contracts deny such claims because they have company insolvency exclusions. Sometimes a company might amend its exclusion by limiting it to companies below a certain ratings category or to an unrated company. Whatever the particulars, this exclusion alone means an agency should carefully scrutinize the financial performance and ratings of the standard and surplus lines carriers it uses. Sometimes your only choice may be a carrier that’s not up to par, and you’ll have to make a business decision whether to use it. In such a case, give the client a very specific and careful explanation of the risks involved in using the carrier. If you go ahead, carefully document your file with written confirmation that the client understands their decision and that the client received a copy of the confirmation. It’s probably preferable to have an agency policy never to use a carrier that A.M. Best’s or another secure ratings organization rates below a certain level. When a carrier falls below the standard, agency and client must decide how to proceed. CONCLUSION These are only a few of the emerging E&O exposures that agencies face. Making sure producers and staff know about them and practicing due diligence in day-to-day activities will go a long way toward reducing agency exposures. There’s no guarantee that asking the proper questions and taking appropriate action will prevent an E&O, but doing nothing is certain to leave an agency in a poor position to defend itself. Due diligence can help reduce the frequency and severity of E&O claims as well as give your clients a valuable service.

...Floater IX. Commercial General Liability X. Commercial Crime XI. Umbrella Liability XII. Premium Summary XIII. Acco...MBRELLA Limit of Liability Premium Limit of Liability Premium ENERGY SYSTEMS Limit Deductible Premium "ALL SYSTEMS GO" Business Equipment Protection KEY PRODUCT FEATURES Total Systems approach, including: Heating Systems Cooling Systems Electrical Systems Mechanical Systems Computing Systems Communication Systems Limitless Policy, including: Property Damage Business Interruption Extra Expense Consequential Damage No Sublimits on: Water Damage Ammonia Contamination Expediting Expense Sublimits of: Additional Expense $25,000 Business Interruption 12 months Single Combine Deductible Spoilage Settlement on Selling Price Off-Premise Power coverage included Eligibility to Building Value of $18,750,000 Designed for "Main Street," Non-Manufacturing Accounts SAMPLE LETTER: PRESENT CLIENTS (Just put this letter in your word processing system and send it out on your personal letterhead.) Date Name, Title Company Name Address City, State, ZIP Dear [name]: An important new form of business protection has just come on the market, and I wanted to make sure you knew about it. Until now, most property or fire insurance policies specifically excluded accidental breakdown coverage for computer systems, telephone equipment and fax machines, duplicating equipment, and other critical business systems. All that has changed. One of America's oldest and best respected insurance companies, The YYY Company, has introduced a policy called "All Systems Go." It protects all the equipment I've mentioned, plus your heating, cooling, and electrical systems. "All Systems Go" reimburses you for the repair or replacement of failed or damaged systems. It also compensates you for lost revenue or spoilage caused by equipment breakdowns. One of the best features of this policy is its low cost. It's a good value, especially compared to what an equipment breakdown could cost you. I'll call shortly and give you a few specifics on how this protection can enhance your property insurance portfolio. Cordially yours, [YOUR NAME] ACCOUNT SERVICING TEAM Account Executive: NAME OFFICE PHONE Account Assistant: NAME(S) Claims Reporting: NAME(S) ALL CLAIMS REPORTING USE WATTS LINE NUMBER: (800) 555-XXXX XXX & Company Street Address City, State Phone: Fax:

...rkers Compensation and Employers Liability policy.' With employers eager to as... coverage like Employment Practices Liability (EPL) insurance. A company's employee manual might have several chapters devoted to maintaining sensitivity toward others' differences, giving equal treatment to all persons, and showing respect to everybody, but it might have little influence on what actually occurs in the business. If a worker misbehaves, the company will bear the consequences unless it has EPL coverage. This protects the company against damages arising from inappropriate criticism, demotion, evaluation, reassignment, discipline, defamation, harassment, humiliation, discrimination, or termination of any employee or any personnel practices, policies, acts, or omissions. EPL coverage grows more popular every year, and insurance companies offer competitive premiums to attract business. Some EPL policies have added risk-management services that provide such assistance as loss-prevention specialists, helpful literature, and procedures to protect against EPL claims.

...hnique addresses include Product Liability (including products recall), Pollution Liability, Errors and Omissions Liability, Workers' Compensation, and high-de...___________________ FAX THIS FORM TO THE RISK MANAGEMENT LETTER, (714) 955-1929. * Special trial subscription not available to existing or previous RML subscribers.

Dollars And Sense Of Financial Statements
Finance, it is often said, is the language of business. This may well be true, but there are a lot of us who don't understand the language and could be described as 'financially illiterate.' It doesn't have to be that way and you don't need an accounting background to become financially literate. Accountants record a written history of the various transactions a business makes in terms of the dollars involved in each transaction. The summary of this history is reported to managers and those outside the business as financial statements or financial reports. The two best-known financial statements are the position statement - or balance sheet - and income statement - or profit or loss statement. (A sample position statement and income statement are included at the end of this article. Refer to the samples as you read this article.) POSITION STATEMENT A position statement shows the condition of a business at a given point in time: the date shown at the top of the statement. The position statement can be likened to a snapshot of the business. This statement shows what the business owns - assets; what the business owes - liabilities; and net worth - the equity or ownership interest of the business. Assets are things of value owned by a business. Examples include cash, inventory of goods for sale, accounts receivable (sums owed to the business by others), land, buildings, furniture, and fixtures. Assets are further classified as current or fixed. Current assets are those likely to be turned into cash within one year in the normal course of business. Fixed assets represent the permanent resources of the business, which are not held for resale. Liabilities are sums owed by a business to others outside the business. Examples of liabilities include accounts payable (sums owed for goods or services provided on credit), notes and/or mortgages payable, and accrued items. Accrued items are obligations that are not yet due but are recognized as an amount due at a future time. For example, a retailer may collect sales taxes on each transaction but does not remit the money thus collected to the state until the end of an accounting period. The tax money is an obligation to pay the state, and the money does not really belong to the business. Liabilities are also classified as current or long term. Current liabilities fall due within one year. Long-term liabilities, or deferred liabilities, are due beyond one year. Net worth represents the interest or equity that the owners have in the business. Net worth is shown in different forms depending on the legal organization of the business. A business organized as a corporation will show net worth as capital stock and retained earnings. Capital stock represents the sum the owners have invested in the business. Retained earnings represent the sums earned by the business that have not been paid out to the owners as dividends. A partnership or proprietorship will show net worth as the owner's investments and perhaps the drawings, or profits, paid out to the owners. Because of the double-entry accounting system used to keep financial records, the formula for the position statement can be stated as: Assets = Liabilities + Net Worth INCOME STATEMENT The income statement (profit or loss) shows what happened to a business over the period of time indicated at the top of the statement. For example, 'the three months ended March 31, 20xx,' or 'the year ended Sept. 30, 20xx.' This statement shows the revenue that came into the business, how it was spent, and what was left over as profit. An income statement can be likened to a motion picture of a business taken over a period of time. Typically, revenue is shown as sales. Sales represent the value of goods and services sold to customers. Next is shown the cost of sales (or cost of goods sold) which is the amount the business paid for what it sold. When cost of sales is deducted from sales, the result is a figure called gross profit. Gross profit simply represents the difference between what the business sold and what it paid for what was sold. It is not a profit in the strict sense of the word. Gross profit is reduced by expenses. Expenses represent sums given up by the business in support of sales. Examples of expenses include rent, salaries/ wages, insurance, advertising, heat, light and power, interest, and outside services. Operating profit is the result of subtracting expenses from gross profit. Operating profit is further adjusted by other additions and deductions and income taxes to result in net profit. Net profit is the final profit available to the owners or the profit that can be 'taken to the bank.' The formula for the income statement is: Sales - Cost of Sales = Gross Profit Gross Profit - Expenses = Operating Profit Now that you have a basic idea of what information is shown by these two financial statements, we can present a 'quick check' of what to look for when you see a financial statement. A word of caution: Each industry or line of business has its own operating characteristics. A manufacturer's statement will differ from a retailer's. Within an industry, the operating characteristics will vary from business to business. For example, a business that makes all sales for cash and does not extend credit to its customers will have different financial requirements and characteristics than one that routinely extends credit. The following are simple ratios that can be used to make a cursory analysis of financial statements: DEBT-TO-NET-WORTH Solvency is one of the first things to look at in evaluating a business. Solvency is the ability to meet financial obligations as they come due, the ability to pay bills on time. A measure of long-term solvency is the ratio of debt to net worth. The formula for this ratio is: (Current Liabilities + Long Term Liabilities) / Total Net Worth = X to X This measures the degree to which the owners or investors in the business have supplied the needed capital for the business as opposed to outsiders. The higher the net worth in relation to debt, the greater the protection afforded to outside creditors. It used to be considered that net worth should exceed debt, but today many businesses function well with debt exceeding net worth. CURRENT RATIO A common measure of short-run solvency is the current ratio. The current ratio provides an indication of the ability of the business to meet current obligations. The formula for this ratio is: Current Assets / Current Liabilities = X to X The traditional benchmark for the current ratio is 2:1. However, many operating characteristics of a business can influence where this ratio should be. A 2:1 ratio today is considered strong. The quality of the assets represented by current assets can be just as important as the ratio itself. For instance, a large, obsolete inventory may not produce enough cash for a business to retire its debts, or slow collection of receivables may hamper a business. INVENTORY TURNOVER For a line of business that maintains a substantial inventory, inventory turnover is important. Inventory must be sold to produce cash which is used, in turn, to pay bills. A rough measure of inventory turnover is: Sales / Inventory = X times Generally, the greatest number of turns is preferred. That is, the faster a business can sell its inventory, the more cash is generated, and the less likely that the inventory will become obsolete. RETURN ON INVESTMENT Turning to the income statement, the first thing to look at is whether the business earned a profit for the period. Assuming a profit is earned, a measure of the quality of that profit is return on investment: Net Profit / Beginning Net Worth = X % Return on investment (ROI) is a measure of how well the business is performing. The percentage can be compared to past performance, to other similar businesses, or to other investments. Note that the calculation for return on investment must be annualized if the statement data is for less than a year before valid comparisons can be made. EXPENSES TO SALES The income statement provides information on how much the business paid out in expenses. Expense control is an important task of management. This ratio indicates what percentage of sales were absorbed by expenses: Total Expenses / Sales = X % Obviously, the lower this percentage, the better the chance of having a portion of the sales dollars ending up as profit. Don't expect to become a financial expert. Nor can you use this information alone to form valid conclusions about the financial condition of a business. You can, however, use this information to help communicate with financial experts, to make some dollars and sense of financial statements. SAMPLE COMPANY INCOME STATEMENT FOR THE 12 MONTHS ENDING DECEMBER 31, 20xx Sales ... Long-Term Debt ...

...legal actions are business and professional people like yourself. You need far more protection than the basic Liability coverages you presently carry. Cons...or almost any contingency involving liability claims. We will call you to arrange an appointment. Sincerely,

Premises Liability When The Neighborhood Comes Over Th...rance, too. It should have premises liability and adequate coverage for any liability. Your agent can help you analyze your assets and choose appropriate coverage limits that provide financial peace of mind.

...quake and hurricane damage. 6. Professional liability insurance Professional liability insurance is also known ...d Although it’s best to consult a professional before buying any policy, there’s a simple approach you can take. First, meet your legal obligations. Then, fill in the gaps with the policies you need to be competitive in your industry.

...gazine for risk and insurance professionals. ...