Car Insurance

IS YOUR company’s vehicle insurance too high? The Insurance Information Institute reports rates are declining in some states, but medical costs are rising. Meanwhile, a recent National Highway Transportation Safety Administration survey reveals many drivers aren’t aware that their coverage is insufficient until after an accident. Here’s how you can reduce insurance costs:

* CHECK YOUR STATE’S DEPARTMENT OF INSURANCE FOR MINIMUM INSURANCE REQUIREMENTS.
* WITH YOUR EMPLOYEES’ WRITTEN PERMISSION, ask your local Department of Motor Vehicles for driving records if you insure drivers. Poor driving records mean higher insurance costs.
* STRESS THAT IF EMPLOYEES BREAK THE LAW–by speeding, for example–their actions can raise rates or cause lawsuits, putting your business in jeopardy.

* COMPARISON SHOP ON WEBSITES such as www.carsdirect.com and www.kbb.com. Use their on-screen calculators for free quotes. Be aware, however, that most sites work with specific insurance companies. If you use an insurance broker, ask if he’s an agent for an insurance company. Not all brokers will direct you to the best deals unless they represent them.

* CHECK FOR DISCOUNTS on safety equipment such as extra airbags, backup warning systems and theft alarms.

* IF YOUR SALESPEOPLE USE THEIR OWN CARS on business and you reimburse them for mileage, encourage them to add rental insurance to their personal policies–and reimburse them for the average annual premium of $25 as well. This preventive measure is less expensive than paying $300 to $500 a week for a replacement rental.

* PICK THE HIGHEST DEDUCTIBLES you can afford to keep the rates low. Buy as much liability as possible to protect your assets if you are sued. On older cars, consider lowering or dropping collision coverage.

FRAUDULENT HEALTH INSURANCE plan promoters are preying on entrepreneurs, and the government is concerned. A General Accounting Office (GAO) survey in 2003 shows from 2000 to 2002, the U.S. Department of Labor (DOL) and the states found 144 unauthorized entities covering at least 15,000 employers and 200,000-plus policyholders, resulting in at least $252 million in unpaid medical claims. At the time of the survey, only about 21 percent of that amount had been recovered. The DOL told Congress it’s trying to crack down on the schemes, but some say Washington lacks the authority to act quickly enough to end them.

Assistant Secretary Ann L. Combs told the Senate Finance Committee, “Small employers are targeted due to the challenges businesses lace in finding affordable health coverage.” Combs says, on average, employers end up paying 20 to 30 percent more for similar health coverage than large employers and unions.

Phony promoters claim to provide coverage at premiums well below what licensed insurers charge. They use strategies that make the plans seem legitimate, such as using marketing materials that resemble those from licensed insurance companies, contracting with existing provider networks, and using names of well-known companies. They might pay small claims so members keep paying the premiums, but when significant bills are submitted, they leave individuals high and dry. Once regulators get wind of the scam, the insurance plans dissolve and move to other locations.

These fraudulent plans elude state regulators by falsely claiming to be federally regulated plans under the Employee Retirement Income Security Act (ERISA). The law pre-empts states from regulating ERISA-covered employee benefit plans sponsored by private employers. But the DOL is responsible for overseeing ERISA plans. Experts say the DOL is slow to respond to fraudulent insurance activity and needs greater enforcement authority to pursue phony plans.

Georgetown University professor Mila Kofman told the Senate Finance Committee that the DOL must go to federal court and overcome a high evidentiary burden. Though the government is trying to gather enough evidence to issue restraining orders prior to trial, Kofman says, “it may take several years to have enough evidence to prove a case in court.”

States, on the other hand, have regulatory authority that can result in quick enforcement of state rules covering health plans. “State insurance departments can issue cease and desist orders against these entities or charge them with illegally operating in the state without a license,” says Kofman. In fact, the GAO found that state insurance departments issued cease and desist orders against 41 unauthorized entities.

The DOL says that in addition to aggressive civil and criminal enforcement, it’s “also pursuing prevention efforts through education for entrepreneurs, as well as a legislative solution that will give businesses coverage options through well-regulated and federally certified association health plans (AHPs). Under AHPs, businesses can pool their employees with other businesses that are part of a bona fide trade or business association. Supporters of AHPs say this would allow entrepreneurs to increase their purchasing power and negotiate lower health insurance rates.

Besides making coverage more affordable, the DOL says AHPs will provide strong protection against abuse, including a mandatory federal certification process, more oversight, and federal solvency standards for self-funded arrangements.

AHPs, however, are not a panacea. The National Small Business Association (NSBA), for example, sees higher costs for entrepreneurs if Congress passes the Small Business Health Fairness Act that would set up AHPs. Under the bill, national trade associations could offer health insurance to members across state lines without being subject to state rules and oversight.

Also, AHPs will not solve the fraud problem, says the NSBA. “If enacted, the measure might help reduce fraud in some cases, but it would create opportunity for health insurance fraud in others,” says Jeremy Claeys, the NSBA’s director of communications.

That hasn’t stopped small-business groups from supporting an AHP bill, which has passed the House (H.R. 660), but not the Senate (S.545). In the meantime, avoid being stung by scam artists. First, when buying insurance, the DOL recommends comparing insurance coverage and costs. If one product appears to offer similar benefits at a dramatically lower cost, ask questions–it may be too good to be true. Request references of employers enrolled with the provider, and get information from employers about benefit payment history and claim turnaround time.

The average American worker has a 1 in 3 chance of becoming disabled for 90 days or more during his or her working years. So it makes sense to include disability insurance in your benefits package.
“With the majority of Americans living paycheck to paycheck, three months or more without pay may mean missing mortgage payments or struggling to keep food on the table,” says Richard Mucci, executive vice president of Simsbury, Connecticut-based. Hartford Life Insurance. “The most important asset people have is the ability to earn an income. It’s an important asset to protect”.
Offering disability as a benefit–even if the employee pays part or all of the premium, as is typical at many companies–will help you attract and retain good workers, Mucci says. Also, most disability policies include a return-to-work component, which means that, in addition to protecting the employee’s income, the insurer also helps the employee get back to work. That assistance could include vocational training for the worker or aid for the employer in making accommodations to allow the worker to return to his original position.

Group disability is surprisingly affordable. “Generally, for as little as $180 per year, somebody could protect 60 percent of their income,” says Mucci. Plans that cover a higher percentage naturally cost more. But whatever you choose, Mucci says, “It’s better to have some type of program than no program.”

Tougher environmental laws can mean lots of extra costs for business. A Brazilian insurance company, though, sees opportunity as well.

Unibanco-AIG Seguros, a joint venture between Unibanco, Brazil’s third-largest private bank, and American International Group, (AIG), a U.S. insurer, now offers Brazil’s first comprehensive corporate environmental liability insurance. While no policies have been issued, the insurers say they have received a slew of coverage requests from pollution-prone companies.

Guilhermo Leao, a Unibanco-AIG environmental insurance product manager, says the company expects to sell dozens of policies by year’s end. It has been selling this type of policy for two decades in the United States. “Signing up companies has been slow because this is such a new product. But we are now negotiating policy terms and prices with some 25 major companies in Brazil to whom we’ve given price quotes,” says Leao. “And I estimate that we will issue 30 to 40 environmental insurance policies by the end of the year.”

Many companies–oil, petrochemical, chemical, pulp and paper, textile, metals and mining concerns–are interested in this insurance because, while their overall liability insurance covers them for pollution that can be contained within a 72-hour period, they have no coverage for so-called gradual pollution, which takes place over longer periods.

Coverage protects against losses from leaking underground fuel tanks to industrial-residue containment pools, which might contaminate river or water tables over months and years, says Unibanco-AIG’s industrial risk director Luis Nagamine. These kinds of risks are getting more expensive, Nagamine says. A 1998 law increased to US$17 million from $17,000 the maximum penalty for environmental infractions, especially pollution. At the same time, domestic and foreign banks in Brazil have taken the initiative to make their corporate clients take steps to reduce environmental risks. Loan approvals might depend on insurance policies to antipollution safeguards. “These banks are making such demands because of their growing concern about being co-liable for environmental damage that results from investment capital they lent,” says Nagamine.

To receive coverage, a company must undergo an external environmental audit to determine potential risks. That risk level determines price and what will and won’t be covered. The Unibanco-AIG policy covers up to $35 million, double the $17 million maximum fine that the government can impose on a company for serious environmental offenses, such as oil spills. The policy covers damage inflicted on-site and offsite, including in residential and industrial properties. It also covers damage done to the environment in general, including rivers, beaches, water tables and other areas not controlled by the company.

Brazil is the only country in Latin America where Unibanco-AIG offers such an environmental policy, says Henry Arima, general manager in Brazil of American International Underwriters (A.I.U.), AIG’s international arm. “It is so new in Brazil that we don’t expect to have competitors in Brazil until the end of 2005,” Arima says.

When Brazilian companies run through their general liability insurance and their sudden-and-accidental pollution insurance, their coverage often does not cover accidents involving underground equipment, like fuel or industrial waste tanks, and it usually only includes, as part of its off-site coverage, residential and industrial areas, not the environment in general, says Walter Polido, the technical and juridical director of the Brazilian office of Munich RE, a German insurer.

“Unibanco-AIG’s broadly defined first- and third-party coverage is one big plus of its new comprehensive insurance,” says Polido. “But the big breakthrough of the Unibanco-AIG’s new product is its coverage of gradual pollution.”

Trends. That breakthrough has prompted other Brazilian insurers to gear up for offering similar types of insurance. “We expect to be offering companies a policy similar to the Unibanco-AIG one during the first half of 2005,” says Alvaro Igrejas, the civil liability manager of Itau Seguros, another large Brazilian insurer. “To offer such insurance, we’re going to have to acquire know-how from a foreign insurer who offers it.”

Roberto Smeraldi, the director of the Brazilian office of Friends of the Earth, says the new coverage could prompt businesses in Brazil to be more proactive with their environmental practices here. Preparing to the pass the third-party audit will force companies to become more environmentally careful before qualifying for coverage, says Smeraldi. “And to preserve their image and to keep their environmental insurance premiums from skyrocketing,” he says, “they will likely have to maintain such environmental consciousness and caution.”

Many state governments effectively prohibit people from buying cheap, basic health insurance by imposing all kinds of mandates. They demand that insurance policies cover the cost of hair transplants, or treatment for alcoholism, or chiropractic services. While the health plans of large companies are regulated by the federal government and thus exempt from the state mandates, small businesses and individuals seeking to buy insurance need relief.

But what kind of relief? If the federal government nullified the state mandates, then all the interest groups that successfully lobbied state governments to require that insurers cover their services would simply turn their attention to Washington. Rep. John Shadegg, an Arizona Republican, has hit on an elegant solution: The federal government should let individuals buy health insurance from out-of-state providers. The insurance would be regulated by the company’s home state. In effect, people would be shopping for regulatory regimes at the same time they shopped for health insurance. State regulations would be in competition with one another, and any state that imposed too onerous a burden would find that business was going elsewhere. We wish Shadegg’s bill covered small businesses, too. But if the Senate follows the House’s lead in passing the bill, Congress will for once have sensibly exercised its power over interstate commerce–and brought a little more freedom to American health care.