The Credit Insurance Market for Businesses

The continuing fallout from the Credit Crunchhas had serious implications for millions of businesses when dealing with other trading partners and has raised the profile of the desirability of Credit Inisurance to protect your business from default on debts owed to you.

A Credit Insurance policy can provide your business with protectioon against non-payment for goods or services due to the failure of a customer to pay their bills. Credit Insurance can minimise bad debts and allow your business to expand your sales, safe in the knowldge that you will be paid. By identifying exactly which of your current and potential customers are sound credit risks you can concentrate your sales effort on customers who offer the best prospects for growth. The advanced credit checking facilities provided by credit insurers can therefore be used as a proactive tool to grow your business.

For most companies over 40% of current assets are made up of money owed for goods and services provided on credit terms. If this is not insured, then there is the potential for a disastrous loss in the future.

Generally speaking, Credit insurance falls under the following broad cover options:
(1) Domestic Credit or Whole of Turnover Domestic credit insurance
This provides cover within the business' local domestic market against bad debt losses caused by insolvency and/or protracted default for a single purchaser or the entire portfolio of receivables (whole turnover). Policies are usually structured with a first loss of �500 to �1,000.
(2) Export Credit Insurance or Whole Turnover Export Credit Insurance
This provides cover for international export sales for a variety of risks including insolvency, protracxted default and political event in the foreign country. Cover is available for a single overseas buyer or for an entire portfolio of foreign receivables (whole turnover).
(3) Combined Domestic & Export Credit Insurance
This is available for businesses trading in both the domestic and export market.
(4) Pre-Delivery Coverage
This is designed for situations where the goods are made to order. It protects against the insolvency of the buyer and/or political default or political frustration.
(5) Specific Account Credit Insurance
This covers receivables for a single specified customer, normally the largest account the business has if they are heavily dependent upon one company. Cover is often provided for insolvency only.
(6) Key Account Credit Insurance
This offers cover against business insolvency and protracted default for a selection of companies of between 2 and 20 of the largest customers. These policies usually carry an excess.
(7) Catastrophe Credit Insurance
This is for companies with an annual turnover in excess of �10 million and with established and effective credit control procedures in place. The insurers set an annual aggregate deductible in excess of which claims are paid. The deductible is set at a level of anywhere between �25,000 and �100,000 for the year.
(8) Global Credit Insurance
This is designed for multi-nationals to cover all of the divisions on a Whole Turnover or Catastrophe basis

85% of the Credit Insurance market is catered for by 3 companies, namely Euler Hermes, Atradius and COFACE. The remainder of the market is catered for by companies such as Ace Europe, Chartis, CIFS, HCC International insurance company Plc, QBE and Zurich.

Creidt Insurance could prevent your company being drawn into major debt difficulties in the event of the failure of a major company and the knock on effect that that entails. It can also be used as a tool to target your sales towards companies that are more likely to grow and thereby improve your own company's sales performance moving forward.

If this is an aspect of your own company's overall insurance portfolio that would be of interest to you please contact me.

The difference between a bona fide and a labour only sub-contractor

In my previous blogs we discussed the compulsory nature of the Employers Liability (Compulsory Insurance) Act 1969 and whether it was necessary for a business to take out Employers Liability Insuranceif the only employee was a spouse or a close relative. Many businesses also employ the services of sub-contractors to assist them with part or all of their operations. There are two distinct types of sub-contractor and it is important that your business is able to distinguish between these different types of sub-contractor. The nature of the contract and your working relationship with the sub-contractor (whether they be a bona fide sub-contractor or a labour only sub-contractor) will have ramifications for the responsibilities you will be assuming and consequently the type of Liability Insurance you require to cover your potential liability.

The following should help you to determine between the different types of sub-contractor and whether Employers Liability Insurance is required.

Labour Only Sub-Contractors

Labour only sub-contractors generally work under the direction of the employer and they do not provide their own materials or tools or than small hand tools. They would be considered as employees for the purposes of an |Employers Liability Insurance policy.

Bona Fide Sub-Contractors

Bona fide sub-contractors generally work under their own direction and provide their own materials and tools. They should also take out their own Public Liability Insurance. Provided they are not working under your direction, have their own legal liabilities which they insure themselves, there is no need to include these in the count of employees.

In the event of an accident caused by the the sub-contractor in the course of executing their contract with you, the injured third party could take legal action against both the bona fide sub-contractor for causing the accident and you as the main contractor. The bona fide sub-contractor's own Public Liability insurance policy would cover them for their own legal liability, and your own Public Liability insurance would cover you in the event that you were found to be legally liable. Please note that your Public Liability policy would only cover you for your own legal liability arising from the incident. It would not cover the bona fide sub-contractor's liability, (hence the need for the bona fide sub-contractor to have their own insurance in force). If, for whatever reason, the bona fide sub-contractor's policy is inoperative or has insufficient cover then the liklihood of the claim being directed against you is greatly increased. (From the third party's perspective their would be little point in suing the bona fide sub-contractor in those circumstances because the chances of them having sufficient funds to pay any significant compensation would be slim. Those with the insurance in force, and therefore the deepest pockets, would be drawn in to any action). It is for this reason that most Public Liability insurers make it a condition of their cover that whenever you enter in to a contract with a bona fide sub-contractor you must check that they have Public Liability insurance in force with cover up to an indemnity limit at least equivalent to the limit provided under your own policy.

It is therefore imperative that whenever you enter in to a contract with a bona fide sub-contractor, you must check that they have Public Liability cover in force for the type of activities they will be undertaking for you and that it will be in force for the duration of the period for which they will be undertaking the work. You must also check that the indemnity limit provided under their policy is at least as much as the limit provided under your own policy. If you do not do this, your own policy would be invalidated and you would therefore have to meet your own legal liability and associated legal costs out of your own coffers.

How to distinguish between a Bona Fide Sub-Contractor and a Labour Only Sub-Contractor

There are a number of factors to take into account when determining the status of a sub-contractor.

A worker would be regarded as a Labour Only Sub-Contractor (and would need to be covered for Employers Liability Insurance) they meet the following criteria
(1) They are paid by the hour, week or month
(2) They are entitled to receive overtime pay or a bonus payment
(3) They only supply their own small hand tools
(4) They always have to do the work themselves
(5) The main contractor can tell them at any time what to do, where to carry out the work or when and how to do it
(6) They work a set amount of hours
(7) The main contractor can move them from task to task

A worker would be regarded as a bona fide sub-contractor if they meet the following criteria
(1) They undertake a job for a fixed price regardless of how long the job may take
(2)They have a contract for the provision of services as opposed to a contract of employment
(3) Within an overall deaddline, they are able to decide what work to do, how and when to do the work and where to provide the services
(4) They regularly work for a number of different people other than the main contractor
(5) They have to correct unsatisfactory work in their own time and at their own expense
(6) They hold their own Public Liability insurance in their own name. (Public Liability insurance is not a statutory compulsory form of insurance so it is possible that a sub-contractor may not have this form of insurance)
(7) They pay the cost of all materials or supplies required for the work without being reimbursed
(8) They are free to hire someone else to do the work or engage helpers at their own expense
(9) They risk their own money
(10) They provide or hire in the main items of equipment they need to do their job, not just the small tools that many employees provide for themselves.

Depending upon the size of the business, Liability Insurers, calculate the premium they will charge for the business in one of two ways:

Small Business (generally up to 10 employees) - Per Capita basis (i.e. on the number of principals/directors/employees in the company)

Larger Businesses - Wageroll and Turnover basis (i.e. they charge a rate per cent to the wageroll of the company, the rate charged being determined  by the nature of the activities being undertaken by the company).

For the larger businesses rated on wageroll and turnover, the wageroll/earnings are split into various categories based on the earnings of the director/principal/sole trader, the wageroll of the employees and payments made to labour only and bona fide sub-contractors. If it is a limited company the director's earnings will be included under the Employers Liability section for rating purposes. Partners' or sole traders' earnings are not included in the calculation of the Employers Liability premium. Under the Employers Liability Section payments to labour only sub-contractors are included, but payments to bona fide sub-contrators are not.

Under the public Liability Section payments to all of the categories are included for rating purposes (although they only charge a much smaller rate for payments made to bone fide sub-contractors. Payments made to labour only sub-contrators are charged the same rate as if they were direct employees because the policyholder is directly responsible for their actions and has greater control over their supervision. Tthe various categories are therefore as follows:  

Employers Liability
Limited companies:
Directors
Employees
Labour Only Sub-Contractors

Partnerships or sole-traders:
Employees
Labour Only Sub-Contractors

Public Liability
Limited Companies:
Directors
Employees
Labour Only Sub-Contractors
Bona Fide Sub-Contractors

Partnerships or Sole traders:
Partners (or Sole Trader)
Employee
Labour Only Sub-Contractors
Bona Fide Sub-Contractors

Further distinctions are then made to the calculation of the premium rate being charged depending on the nature of the work being undertaken. For example, clerical/sales, manual work depending upon the trade, work at height, work at depth, work involving the application of heat etc.

Further factors can be taken into account to fine tune the rating of the policy to take into account their comapny's claims history, attitude to risk, what health and safety procedures are in place to name but a few.

If you have any queries regarding this article or would like advice regarding any aspect of your own company's Liability Insurance requirements please do not hesitate to contact me for a free, impartial and independent review.

david.wilson65@hotmail.com
07970 304169


   

Employers Liability Insurance - Do I need to tell my Employees that I have Employer's Liability Insurance

Further to my previous blog regarding Emplyers Liability Insurance, once you have taken out Employers Liability Insurance the Insurance company will issue (in addition to the Insurance policy and Schedule) an Employers Liability Certificate. This Certificate will confirm that the policy meets the minimum level of statutory cover as required under the Employers Liability (Compulsory Insurance) Act 1969 and that the policy has been issued by an insurer authorised to do so.

Most policies in the UK will have an indemnity limit of �10,000,000 which is the industry norm. However, the certificate will only confirm that the limit is at least �5,000,000 (to comply with the above legislation. To check the actual amount of cover provided under the policy you should refer to the insurance Schedule and not the certificate.

The certificate will also show the names of the companies covered by the policy, the period of insurance and the identity of the insurer.

A copy of your insurance certificate must displayed where your employees can easily read it. If you trade from more than one premises, a copy must be displayed at each location. These regulations changed slightly on 1st October 2008, when employers were allowed to display their certificates electronically, provided the employer ensures that their employees know how and where to find the certificate and have reasonable access to it. Factors to consider include the availability of the chosen format and ensuring employees understand how to use it.

With regard to offshore installations or associated structures, employers do not need to provide a copy of the certificate on every installation, although if an employee asks to see a copy of the certificate, he is entitled to to be provided with a copy as soon as possible and in any case within 10 working days of their request.

Since 1st October 2008, the previous requirement for employers to retain a copy of their Employers Liability certificates for a minimum of 40 years was overturned. Since that date there has been no legal requirement for employers to keep copies of out-of-date certificates. However, while it is no longer a legal requirement to keep these records, it is still prudent for an employer to continue to keep records of their Employers Liability insurers for some considerable time after the cover with a particular iinsurer has expired.

A claim can occur on an Employers Liabilty policy many years after an employee's period of employment ( for example, an industrial  disease such as Asbestosis may not manifest itself until many years after a person's period of employment has ended). If the employer has not kept adequate records and cannot identify the insurer concerned for the period of the employee's employment, any claim for compensation will be directly against the employer. With conditions such as Asbestosis and the like, any such compensation claim could be extremely expensive and potentially ruin the company. The need to retain accurate details of your Employers Liability insurers (ideally for up to 40 years) is therefore vital to safeguard the company.

These are just a few of the responsibilities imposed upon employers when taking out Employers Liability insurance.

If anyone is unclear or would like clarification on their responsibilities with regard to Employers Liability insurance please do not hesitate to contact me for assistance.

Do I need Employers Liability Insurance if I employ my spouse?

Whilst it is not compulsory in the UK for a business to have Public Liability insurance (which covers the potential legal liability of a business to members of the public), it is compulsory for a business operating in the UK and with one or more employees to have in force a valid insurance covering them against Employers Liability. This is a requirement of the Employers Liability (Compulsory Insurance) Act 1969.

Employers Liability insurance protects the employer against his or her legal liability for compensation and associated legal costs in the event of an employee being injured or contracting an illness or diseae in the course of his employment. 

Minimum Levels of Cover
The Employers Liability (Compulsory Insurance) Act 1969 requires a minimum indemnity limit of �5,000,000 although most insurers offer a limit of �10,000,000 as standard.

If the business is part of a group, a policy covering the whole group including subsidiary companies may ne taken out, in which case the group as a whole must have cover of at least �5,000,000. Any associated companies (for example where the directors of comapny A are also separately directors of company B, but company B is not a subsidiary of Company A) must have their own cover each with a minimum of �5,000,000.

When deciding upon the level of cover appropriate to your own particular business it should be borne in mind that claims for employees when they are disabled as a result of an accident at work can add up to a huge sum when taking into account the cost of lost income, pain and suffering and the potentially lifelong care cost required. If more than one employee is injured in a single incident the indemnity limit has to be sufficient to cover the costs from all the employees injured in the same incident. Without cover to provide a sufficently high indemnity limit any such claims could bankrupt an employer.    

Which Firms are Exempt from having to take out Employers Liability cover
The following employers are exempt:
(a) most public organisations including Government departments and agencies, local authorities, Police authorities and nationalised industries;
(b) Health service bodies, including National Health trusts, health authorities, primary care trusts and Scottish health boards; some other organisations which are financed through public funds, such as passenger transport executives and magistrates' courst committees;
(c) family businesses where all of the employees are closely related to the employer. This includes any husband, wife, civil partner, father, mother, grandfather, grandmother, stepfather ,stepmother, son, daughter, grandson, granddaughter, brother, sister, half-brother or half-sister. However, this exemption does not apply to family businesses which are incorporated as limited companies. This is because a limited company is regarded as a separate legal entity from its individual directors and you can't therefore be regarded the son or daughter of a limited company.
(d) companies employing only their owner where that employee also owns 50% or more of the issued share capital in the company.

What are the Consequences of not having Employers Liability cover?
The Health & Safety Executive (HSE) enforces the law on Employers Liability insurance and their inspectors will check that you have this cover with an approved insurer for at least the statutory minimum level of �5,000,000.

The fines are as follows:

�2,500 for every day which you are without insurance
�1,000 if you do not display the certificate of insurance or refure to make it available to HSE inspectors.

These fines would apply irrespective of whether there had been a claim. 

The insurer providing the cover must be authorised to do so. If they are not, you may be breaking the law and subject to the above fines. The Financial Services Authority (FSA) maintains a register of authorised insurers. You can check whether a company is authorised by searching their register on http://www.fsa.gov.uk/, or telephoning the FSA on 0207 066 1000.

In addition to the fines of course the business would be exposed to a potentially disastrous liability in the event of an employee being injured at work or contracting a disease in the course of their employment.

Who is an Employee?
The legal requirement for Employers Liability cover is for any business employing people under a contract of service or apprenticeship. The contract may be spoken, written or implied. There are a number of factors to be considered when determining whether a person is employed under a contract of service. Irrespective of whether you usually call someone an employee or self-employed or their tax status the following factors will be taken into consideration:
(a) You deduct National insurance and Income Tac from the money you pay them
(b) You have the right to control where and when they work and how they do it
(c) You supply most of the materials and equipment
(d) You have a right to any profit your workers make although you may choose to share this with them through commission, performance pay or shares in the company. Similarly you will be responsible for any losses.
(e) You require that person to deliver the service and they cannot employ a substitute if they are unable to do the work
(f) They are treated in the same way as other employees, for example, if they do the same work under the same conditions as someone you employ

The following factors may be persuasive in determining that they are not an employee:
(a) They do not work exclusively for you (for example, if they operate as an independent contractor)
(b) They supply most of the equipment and materials they need to do the job
(c) They are clearly in business for personal benefit
(d) They can employ a substitute when they are unable to do the work themselves
(e) You do not deduct Income Tax or National Insurance. However, even if someone is self employed for tax purposes they may be classed as an employee for other reasons and you may still need Employers' Liability. 
   
In most cases you will not need Employers' Liability insurance for volunteers of for
(a) students who work for you unpaid
(b) people who are not employed, but taking part in a youth or adult training programme, or
(c) a school student on a work experience programme.

Insurers will generally cover the above as part of their standard Employers Liability policy, and there is generally no need to inform your insurer if you take on any of the above. However, you should talk to your insurers if you take on the above either for long periods, ,or if they are undertaking any work that is not part of your company's normal business activities. You should also bear in mind the level of risk to which they will be exposed when they are working for you and it may be necessary to carry out a separate risk assessment.  

These are just a few observations regarding Employers Liability cover and the compulsory nature for emplyers. More observations next week.

In the meantime, if anyone has any queriesor observations regarding any of the above or their own requirements for Employers Liability for their own business please do not hesitate to be in touch.

A new blog for issues relating to all forms of Business Insurance

This is an exciting new departure for me into the World of the blogosphere. After 25 years in the UK Commercial Insurance sector as an Insurance Broker I am setting up this blog and inviting anyone to make comments on any issues or queries they may have with their Business Insurance, whether it be where to get a great deal for their portfolio of rental properties or what to look out for when adding a vehicle on to your Motor Fleet Insurance.

I will be writing on various Business Insurance related subjects which may be of interest and inviting people to air their views in an open forum so that they can use this blog as a resource of information and expert opinion.

If you have a business whether it be large or small, and you would like to get in touch please feel free to do so.

My first discussion subject will be posted later this week so please re-visit me then.  

Obama's Home Refinance Stimulus Plan to Save Your Home

We simply cannot turn on the television news without hearing about another company closing their doors. Talk to your neighbors, odds are good that they have either been laid off, had their hours cut, or maybe had benefits taken away. Take a walk down a busy street, you have probably bumped into a handful of people that are about to lose their homes. Each of us has been hit hard with all of the cuts being made during this economic crisis. Perhaps you are one of those handfuls on that busy street, about to lose your home. Maybe you now owe more than the house is worth, or maybe you just cannot make that monthly mortgage payment with that unemployment check. President Obama has two new ideas to help you save your home with his home refinance stimulus package.

The first option is the "Home Affordable Refinance" plan. This part of Obama's home stimulus package requires that you are current on your mortgage. Basically, this plan will lower your interest rates which in turn will lower your monthly payment. The principle owed will not change, just the interest rate. The equity you already have in your home will also continue to increase under this home stimulus plan. If you are current on your payments and the home is your primary residence, you have until June 10, 2010 to apply for this "Home Affordable Refinance" plan.

The second option under Obama's home stimulus package is the "Home Affordable Modification" plan. In order to qualify for this home loan modification, your primary residence housing expenses must be more than 31% of your total gross income. If you lost your job or had a major medical expense and can no longer afford your mortgage payments you should talk to your bank regarding this home loan modification process. The Treasury Department is willing to help with this home stimulus plan as well. Each month that you make your mortgage payment on time, they may make a payment that will apply directly to your principle. If you qualify for this part of Obama's stimulus plan, over a 5 year span the Treasury may pay as much as $5,000.00. You have until December 31, 2010 to talk to your bank about this loan modification help. The federal government is trying to save our homes!

by Scott A. Kennedy

Know how to get Easy Home Loans

In today's competitive world it is not a tough task to get home loans as there are many banks and independent financial institution who are offering this service to the consumers. Whether you are looking for a mortgage loan or a home equity loan the availability of these loans is in vogue.

These loans are easy to get and also very flexible and tenable. It is perfect for the homeowners especially as it is much uncomplicated. These investment loans are easy available as it is offered by almost all financial institutions and banks. Most of the people who are planning to buy a home depend on the availability of these loans to fulfill their dreams.

There are very few people who have enough bank balance or other saleable property to be able to invest anywhere else. And even those who are financially strong enough to buy a property on their own rather find it beneficial to borrow money from the banks in the form of investment loan as they manage to save tax in doing so. The money that these home owners borrow from the financial institutions is what is called a mortgage and it is secured on the real estate by the "lien". Everyone dream of having their own house. And especially people from the middle class consider it to be a big achievement as it is a very considerable investment that one has to make. This is where the banks play a very key role in fulfilling their dreams. The home equity loan that these banks offer and the services that come along with it are very beneficial to the consumers.

Thus before taking a loan it is very important to understand the terms and conditions of the bank and the policy and the procedure so that you do not end up paying more to the bank then you should. When taking loan the consumer has to mortgage a security document which will allow him to keep the property title while he can use the property as a security against the loan. The money lending institution in turn puts a lien to the property in the event of the consumer does not repay the loan amount.

Once the loan is repaid the lien on the property is taken back or removed. The home loan borrowers need to remember that mortgage points are of two different kinds. The origination point and the discount point. The charge of these mortgage points may differ with every lender. The discount point is used to get the loan at a desired interest rate wherein a certain amount is paid to the lender.

The origination point on the other hand is paid to the lender to get loan in the first place. The origination point is less popular in comparison to the discount point as it offers the consumers with no benefit and is also not tax deductible. Hence when looking for home loans it is advisable to get it form the lenders who do not charge these points.

by Jessisa Thomson