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Chapter 23
Cases in Holistic Risk Management
By this point, you have gained an understanding of the life cycle risks associated
with mortality, longevity, and health/disability. You have learned about the social
insurance programs such as Social Security and Medicare that help counter these
risks. We have delved into life, health, and disability insurance products in Chapter
19 "Mortality Risk Management: Individual Life Insurance and Group Life
Insurance" and Chapter 22 "Employment and Individual Health Risk Management"
and discussed pensions in Chapter 21 "Employment-Based and Individual Longevity
Risk Management". The availability and features of these products in group
(employer-sponsored) or individual arrangements were also discussed. On the
property/casualty side, we covered all the risks confronted by families and
enterprises. We discussed the solutions using insurance for the home, automobile,
and liability risks. Thus, you now have the tools needed to complete the holistic risk
puzzle and the steps representing each layer of the risk management pyramid, from
society on up to you as an individual.
With that said, this chapter is a departure from most, but it is vitally important. Our
final lesson focuses on applying your knowledge and skills in the complete holistic
risk management picture. In other words, you will now learn how to use your new
tools. Practical case studies featuring hypothetical families and companiessome
designed by fellow studentsare utilized to fulfill this objective. The situations
posed by these cases are ones that you may encounter in the roles you serve
throughout your life, and they incorporate the insurance products and risk
management techniques discussed throughout this text.
We begin first with a sample family risk management portfolio involving home,
auto, life, health, and disability insurance coverage and planning for retirement.
This case is for the personal needs of families. The second case focuses on the
employers provided employee benefits package. It is designed as the benefits
handbook of a hypothetical employer who provides more benefit options than
current practices. In the last case, we broaden our understanding of enterprise risk
management (covered in Part I of the text) by exploring the concept of alternative
risk financing and the challenges faced by a risk manager in selecting among
insurance products for commercial risk management needs.
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Chapter 23 Cases in Holistic Risk Management
At the conclusion of this chapter, your knowledge of risk management concepts will
be reinforced and expanded. The chapter is structured as follows:
1. Links
2. Case 1: The Smith Family Insurance Portfolio
3. Case 2: Galaxy Max, Inc., Employee Benefits Package
4. Case 3: Nontraditional Insurance Programs and Application to the
Hypothetical LOCO Corporation
Links
Recall from Chapter 18 "Social Security" that social insurance programs include
Social Security, workers compensation, and unemployment compensation
insurance (and, in a few states, state-provided disability insurance). In the United
States, these programs are intended to protect members of the work force and are
not based on need. The best-known aspect of Social Security is the mandatory plan
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Chapter 23 Cases in Holistic Risk Management
for retirement (so-called old-age benefits). But the program also includes disability
benefits; survivors benefits; and Medicare parts A, B, C, and D.
Table 23.1 "Benefits for Two Hypothetical Losses of Lives" shows the benefits
available to each of the families. It is important to note that both Mike and Allen
were employed for at least ten years (forty quarters). Therefore, they were fully
insured for Social Security benefits, and their families were eligible to receive
survivors benefits under Social Security. Each family received the allotted $255
burial benefit. Also, because both had young children, the families were eligible for
a portion of the fathers Primary Insurance Amount (PIA). The Social Security
Administration provided the benefits immediately without official death
certificates, as described by Commissioner Larry Massanari in his report to the
House Committee on Ways and Means, Subcommittee on Social Security.Social
Security Testimony Before Congress, House Committee on Ways and Means,
Subcommittee on Social Security (Shaw) on SSAs Response to the Terrorist Attacks
of September 11, Larry Massanari, Commissioner, http://www.ssa.gov/legislation/
testimony_110101.html (accessed April 16, 2009).
You learned in Chapter 16 "Risks Related to the Job: Workers Compensation and
Unemployment Compensation" that workers compensation provides medical
coverage, disability income, rehabilitation, and survivors income (death benefits).
Benefits are available only if the injury or death occurred on the job or as a result of
the job. Because Allen was at the office at the time of his death, his family was
eligible to receive survivors benefits from the workers compensation carrier of the
employer.
Allens
Mikes Family
Family
Social insurance
Unemployment compensation No No
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Chapter 23 Cases in Holistic Risk Management
Allens
Mikes Family
Family
Yes (former
Pensions and 401(k) Yes
employers)
Personal insurance
The New York Workers Compensation Statute states, If the worker dies from a
compensable injury, the surviving spouse and/or minor children, and lacking such,
other dependents as defined by law, are entitled to weekly cash benefits. The
amount is equal to two-thirds of the deceased workers average weekly wage for the
year before the accident. The weekly compensation may not exceed the weekly
maximum, despite the number of dependents. If there are no surviving children,
spouse, grandchildren, grandparents, brothers, or sisters entitled to compensation,
the surviving parents or the estate of the deceased worker may be entitled to
payment of a sum of $50,000. Funeral expenses may also be paid, up to $6,000 in
Metropolitan New York counties; up to $5,000 in all others.
The maximum benefit at the time of the catastrophe was $400 per week, less any
Social Security benefits, for lifetime or until remarriage.Daniel Hays, Workers
Compensation Losses Might Top $1 Billion, National Underwriter, Property &
Casualty/Risk & Benefits Management Edition, September 2001, 10; See also New
York State Workers Compensation Board at http://www.wcb.state.ny.us/ (accessed
April 16, 2009). Thus, Allens family received the workers compensation benefits
minus the Social Security amount. Recall from Chapter 16 "Risks Related to the Job:
Workers Compensation and Unemployment Compensation" that under the
workers compensation system, the employees family gives up the right to sue the
employer. Allens family could not sue his employer, but Mikes family, not having
received workers compensation benefits, may believe that Allens employer was
negligent in not providing a safe place for a visitor and may sue under the
employers general liability coverage.
In Mikes case, the New York Disability Benefits program did not apply because the
program does not include death benefits for non-job-injury. If Mike were disabled
rather than killed, this state program would have paid him disability benefits. Of
course, unemployment compensation does not apply here either. However, it would
apply to all workers who lost their jobs involuntarily as a result of a catastrophe.
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Chapter 23 Cases in Holistic Risk Management
Because Allen was employed at the time, his family was also eligible to receive
group benefits provided by his employer (as covered in Chapter 20 "Employment-
Based Risk Management (General)", Chapter 21 "Employment-Based and Individual
Longevity Risk Management", and Chapter 22 "Employment and Individual Health
Risk Management"). Many employers offer group life and disability coverage,
medical insurance, and some types of pension plans or 401(k) tax-free retirement
investment accounts. Allens employer gave twice the annual salary for basic group
term life insurance and twice the annual salary for accidental death and
dismemberment (AD&D). The family received from the insurer death benefits in an
amount equal to four times Allens annual salary, free from income tax (see Chapter
19 "Mortality Risk Management: Individual Life Insurance and Group Life
Insurance" and Chapter 21 "Employment-Based and Individual Longevity Risk
Management"). Allen earned $100,000 annually; therefore, the total death benefits
were $400,000, tax-free.
Allen also elected to be covered by his employers group short-term disability (STD)
and long-term disability (LTD) plans. Those plans included supplemental provisions
giving a small amount of death benefits. In the case of Allen, the amount was
$30,000. In addition, his employer provided a defined contribution plan, and the
accumulated account balance was available to his beneficiary. The accumulated
amount in Allens 401(k) account was also available to his beneficiary.
Mikes family could not take advantage of group benefits because he was not
employed. Therefore, no group life or group STD and LTD were available to Mikes
family. However, his pension accounts from former employers and any individual
retirement accounts (IRAs) were available to his beneficiary.
Survivors medical insurance was a major concern. Allens wife did not work and
the family had medical coverage from Allens employer. Allens wife decided to
continue the health coverage the family had from her husbands employer under
the Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1986. The law
provided for continuation of health insurance up to 36 months to the wife as a
widow for the whole cost of the coverage (both the employee and the employers
cost) plus 2 percent (as covered in Chapter 22 "Employment and Individual Health
Risk Management").
For Mikes family, the situation was different because Mike was in graduate school.
His wife covered the family under her employers health coverage. She simply
continued this coverage.
The third layer of available coverage is personal insurance programs. Here, the
families personal risk management comes into play. When Mike decided to return
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Chapter 23 Cases in Holistic Risk Management
to school, he and his wife consulted with a reputable financial planner who helped
them in their risk management and financial planning. Mike had made a series of
successful career moves. In his last senior position at an Internet start-up company,
he was able to cash in his stock options and create a sizeable investment account for
his family. Also, just before beginning graduate school, Mike purchased a $1 million
life insurance policy on his life and $500,000 on his wifes life. They decided to
purchase a twenty-year level term life rather than a universal life policy (for
details, refer to Chapter 19 "Mortality Risk Management: Individual Life Insurance
and Group Life Insurance") because they wanted to invest some of their money in a
new home and a vacation home in Fire Island (off Long Island, New York).
The amount of insurance Mike bought for his wife was lower because she already
had sizeable group life coverage under her employers group life insurance package.
Subsequent to Mikes death, his wife received the $1 million in death benefits
within three weeks. Despite not having a death certificate, she was able to show
evidence that her husband was at the World Trade Center at the time. She had a
recording on her voice mail at work from Mike telling her that he was going to try
to run down the stairs. The message was interrupted by the sound of the building
collapsing. Thus, Mikes beneficiaries, his wife and son, received the $1 million life
insurance and the Social Security benefits available. Because the family had sizeable
collateral resources (nonfederal government sources), they were eligible for less
than the maximum amount of the Federal Relief Fund created for the victims
families.
Allens family had not undertaken the comprehensive financial planning that Mike
and his family had. He did not have additional life insurance policies, even though
he planned to get to it one of these days. His familys benefits were provided by
his social insurance coverages and by his employer. The family was also eligible for
the relief fund established by the federal government, less collateral resources.
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Chapter 23 Cases in Holistic Risk Management
employees had fled the store and the area. Dust and building materials engulfed and
penetrated the building; the windows shattered, but the structure remained
standing. Because Worlding leased rather than owned the building, its only
property damage was to inventory and fixtures. But renovation work,
neighborhood cleanup, and safety testing kept Worlding closedand without
incomefor seven months.
The case of insurance coverage for Worldings losses is straightforward because the
owners had a business package policy that provided both commercial property
coverage and general liability. Worlding bought the Causes of LossSpecial Form,
an open perils or all risk coverage form (as explained in Chapter 11 "Property Risk
Management" and Chapter 15 "Multirisk Management Contracts: Business").
Instead of listing perils that are covered, the special form provides protection for all
causes of loss not specifically excluded. Usually, most exclusions found in the
special form relate to catastrophic potentials. The form did not include a terrorism
exclusion. Therefore, Worldings inventory stock was covered in full.
Worlding did not incur any liability losses to third parties, so all losses were
covered by the commercial property coverage. Worlding provided regular
inventory data to its insurer, who paid for the damages without any disputes. With
its property damage and the closing of the neighborhood around the World Trade
Center, Worlding had a nondisputable case of business interruption loss. Coverage
for business interruption of businesses that did not have any property damage, such
as tourist-dependent hotel chains and resort hotels,John D. Dempsey and Lee M.
Epstein, Re-Examining Business Interruption Insurance (part one of three), Risk
Management Magazine, February 2002. depended on the exact wording in their
policies. Some policies were more liberal than others, an issue described in Chapter
15 "Multirisk Management Contracts: Business".
Because Worlding was eligible for business income interruption coverage, the
owners used adjusters to help them calculate the appropriate amount of lost
income, plus expenses incurred while the business was not operational. An example
of such a detailed list was provided in Chapter 15 "Multirisk Management Contracts:
Business". The restoration of the building to Worldings specifications was covered
under the building owners commercial property policy.
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Chapter 23 Cases in Holistic Risk Management
have been without a job to return to. Thus, the layer of the business coverage is as
important in an introductory risk and insurance course as are all aspects of your
personal and employment-related insurance coverages.
In addition, emphasis is given to the structure of the insurance industry and its type
of coverage and markets. Emphasis is given to the new concept of considering all
risks in an organization (enterprise risk management), not just those risks whose
losses are traditionally covered by insurance.
The text has been designed to show you, the student, the width and variety of the
field of risk management and insurance. At this stage, the pieces needed for holistic
risk management now connect. As noted above, current events and their risk
management outcomes have been clarified for you, whether the losses are to
households or businesses. Furthermore, you now have the basic tools to build
efficient and holistic risk management portfolios for yourself, your family, and your
business.
The risk puzzle piecing together the risks faced by individuals and entities is
presented one final time in Figure 23.2 "Complete Picture of the Holistic Risk
Puzzle", which brings us full circle.
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Chapter 23 Cases in Holistic Risk Management
LEARNING OBJECTIVES
Homeowners insurance
Auto insurance
Long-term disability
Life insurance
Health insurance
Retirement planning
Preface
The purpose of this project is to build a portfolio of risk management and insurance
coverages for a hypothetical family. This report is typical of those produced by
students as a group project in the authors risk and insurance classes. The students
present sections of the types of coverage they design throughout the semester and
submit the complete project at the end of the semester as part of their final grade.
The students live the project during the semester and provide creativity along with
hands-on knowledge and information about the best risk management for their
fictional families. Many groups develop special relationship with helpful agents
who volunteer to speak to the class. The help that agents provide receives high
marks from most students.
This report, as all the others produced by the students, considers property, auto,
disability, life, health, and long-term care insurance, as well as retirement planning.
The group project presented here does not involve the agent-customer relationship.
Many other reports do include the relationship as a reason to buy from a specific
company.
Introduction
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Chapter 23 Cases in Holistic Risk Management
the best coverage for our hypothetical familythe Smith family. Several insurance
quotes were found through Insweb.com, and others were benefits offered by
Virginia Power, a utility company in Richmond, Virginia. We also talked to some
agents.
Family Description
John is a thirty-five-year-old nuclear engineer who has been working for Virginia
Power since 1999. His wife, Karen, is a thirty-year-old homemaker. They have been
married for five years. John and Karen have a nine-month-old infant named
Tristian. John and Karen are in good health. They are looking forward to having
another child, but Karen has high pregnancy risk. This has to be taken into
consideration when selecting health insurance coverage for the family. Their
annual net income is $72,000 (Johns salary of $100,000, less taxes and other
deductions). They own two cars. John drives a 1996 Toyota Corolla and Karen drives
a 1997 Toyota Camry. They need good insurance coverage because John is the only
one who is working. All the insurance providers examined have ratings of A or
better in A.M. Best ratings.
Insurance Coverage
Homeowners Insurance
John and Karen purchased a two-story single home for $150,000 in 1996. The house
is located on 7313 Pineleaf Drive in Richmond, Virginia. The total footage is 2,014
square feet. There is a two-car attached garage. John and Karen decided not to
renew their homeowners insurance with AllState Insurance because of the
expensive premium and unacceptable customer service they experienced in the
past. John did research on the Internet and found quotes from different companies.
He was asked to give detailed information on the house. The house is located within
1,000 feet of a fire hydrant and it is one hundred feet away from a fire station. John
promised to install a security system to prevent theft. Karen wanted extra
protection on her precious jewelry worth $10,000, Ming china worth $5,000, and
antique paintings valued at $7,000. They need scheduled personal property
endorsements. Over the last five years, John and Karens house has appreciated by
$10,000. They want to insure the home to 100 percent of its estimated replacement
cost, which is $160,000, rather than 80 percent. In case of a total loss, the insurer
will replace the home exactly as it was before the loss took place, even if the
replacement exceeds the amount of insurance stated in the policy. Table 23.2
"Homeowners Insurance Plan Options" summarizes the coverage quoted by three
insurance companies.
The Smith family decided to choose the insurance coverage provided by Travelers
because of the companys good rating and low premium, and because the premium
includes a water-back coverage. Under this HO 3 (special form), dwelling and other
structures are covered against risk of direct loss to property. All losses are covered
except certain losses that are specifically excluded.
Auto Insurance
John drives a 1996 Toyota Corolla, which he purchased new for $18,109. He had one
accident in the past four years in which he was hit by another driver. His estimated
driving mileage within a year is 10,000. He drives 190 miles weekly to work. His car
is not used for business purposes. Karen bought a new Toyota Camry in 1997 for
$20,109. She has never had an accident. Her estimated mileage within a year is 7,500
and the weekly driving is 100 miles.
The Smiths used Insweb.com and found several quotes from various insurance
companies that fit their needs. Table 23.3 "Auto Insurance Plan Options"
summarizes the results of their research.
Integon
Companies Harford Dairyland
Indemnity
The Smith family decided to choose the insurance coverage provided by Harford
Insurance Company. Harford has an A+ rating, the coverage is more comprehensive,
and the premium is significantly lower than the other two companies.
Loss Scenario 1
John has had this auto insurance for almost half a year. On the way to a business
meeting one day, he is hit by an uninsured motorist. Johns car is badly damaged
and he is rushed to the emergency room. Luckily, John has only minor cuts and
bruises. John reports this accident to the police and notifies his insurer. The
insurance company inspects and appraises the wrecked car. The Smiths uninsured
motorists coverage covers Johns medical expenses (under bodily injury) and
property damages caused by the accident. Harford Insurance considers Johns car a
total loss and pays him $14,000 (fair market value less the deductible).
Long-Term Disability
The Smith family decided to purchase long-term disability (LTD) insurance for John
because he is the only breadwinner in the family. In the event of an accident that
would disable John and leave him unable to work, the family would need adequate
coverage of all their expenses. The LTD benefit provided by Johns employer,
Virginia Power, would pay 50 percent of Johns salary in case of his total disability;
however, the family would like to have more coverage.
TransAmerica, an insurance broker that prepares coverage for Erie and Prudential
Life, prepared two plans for the Smiths as shown in Table 23.4 "Long-Term
Disability Plan Options". Both plans provided benefits to age sixty-five with a
ninety-day waiting period. Both plans offer the same level of optional benefits,
including residual disability and an inflation rider.
Erie Prudential
Optional benefits
The Smith family chose additional disability coverage provided by Erie because of
the lower premium, lower residual disability cost, and lower inflation rider cost.
Life Insurance
The Smith family realized they needed to invest in additional term life insurance
for John because his employer provided only term life coverage in the amount of
one times his salary, $100,000. They did not need to worry about life insurance for
Karen because her parents bought a ten-year level term coverage in the amount of
$250,000 on Karens life when Tristian was born. They told Karen that an untimely
death would mean an economic loss to the family because John would likely have to
hire help for housekeeping and child care.
As noted above, John is thirty-five years old and in very good health. He enjoys
working out at the gym after work at least three days a week and has never been a
smoker. Johns family history shows no serious health problems, and most of his
relatives have lived well into their seventies.
To decide how much life insurance is needed for John, he and Karen worked on a
needs analysis with some friends who are familiar with financial planning. They
came to the conclusion that he will need to purchase $300,000 additional coverage.
The following breakdown shows why they believe they need this amount of
coverage:
Cash needs
Income needs
Special needs
Virginia Power offers additional life insurance that their employees can purchase
through North American Life. The Smiths wanted to compare prices of additional
coverage, so they looked on the Internet. They found that the Western-Southern
Life and John Hancock plans to fit their budget and their needs. All three plans are
compared in Table 23.5 "Life Insurance Plan Options".
Initial monthly
$21.00 $19.95 $18.50
premium
The Smith family decided to go with Western-Southern Life because of its higher
rating, low premiums, and guaranteed initial rate for twenty years. John will have
to prove evidence of his insurability when he purchases the coverage (unlike the
group life coverage provided by the employer). This is not a major issue to John
because he is in excellent health. If John were to leave the company, his life
insurance would terminate, but he could convert it to an individual cash-value
policy at that time.
Health Insurance
Virginia Power offers its employees two preferred provider organization (PPO)
options and one health maintenance organization (HMO) option. The Smith family
decided to choose one of the PPO plans as opposed to an HMO plan because Karen
and John are planning to have another child and, considering her high-risk status,
prefer to have more choices and out-of-network options if necessary.
A PPO is a network of health care providers who have agreed to accept a lower fee
for their services. A PPO plan gives one the flexibility to select a network provider
without having to select a primary care physician to coordinate care or to go out-of-
network with higher copayments. All of Virginia Powers benefit coverage is
provided by Anthem, a Blue Cross/Blue Shield company with A++ rating. Employees
of Virginia Power and their family members are covered on the date employment
begins. Benefits will be provided at the in-network level to an employee who lives
outside the networks geographic area. In-network participants must receive
preventative care benefits from PPO providers. Participants who live outside the
networks geographic area may receive these services from PPO and non-PPO
providers. Table 23.6 "Health Insurance Plan Options" compares the benefits of the
two PPO options.
In-Network/Out-
In-Network/Out-of Network
of Network
Monthly premiums
(employees portion for the $91.41 $41.13
whole family)
Prescription drugs
The Smith family chose Plan 1 because of the lower deductible and lower out-of-
pocket maximum compared to Plan 2. Also, the lifetime maximum benefit is
unlimited.
Loss Example 2
While vacationing with his family in Orlando, Florida, John keeps up his morning
jogging routine. On the third day of the vacation, John suffers chest pains while
running and collapses. John is rushed by ambulance to a nearby hospital where he
is diagnosed with a bronchial infection. X-rays and lab work total $300. The family
pays 20 percent of the bill because they had met their deductible for the year. Their
total out-of-pocket expenses for the visit are $60. Though disappointed that he cant
jog for a week or two, John is thankful that, even out of state, he is able to have
expert medical care and return to his family to enjoy the remainder of his vacation.
Long-Term Care
John and Karen are very young, so they do not perceive the need for investing in
long-term care. Virginia Power doesnt offer this option. However, John has heard
rumors that long-term care might be offered next year. If Virginia Power does begin
offering long-term care, John will consider participating in it.
Retirement
The Smiths decided to invest in the 401(k) plan offered by Virginia Power. Virginia
Power matches contributions at 50 percent. John chose to defer 4 percent of his
salary ($240 monthly). When added to Virginia Powers 2 percent, or $120, the
monthly total is $360. The contribution is invested in mutual funds. Johns 401(k)
current balance is $32,000 and he hopes he will be able to invest it wisely. He can
begin withdrawing his retirement benefits at age fifty-nine and a half with no
penalties if he wishes.
Table 23.7 "Smith Family Income Statement" and Table 23.8 "Smith Family Net
Worth" depict the Smith familys finances. Figure 23.3 "Monthly Cost Allocation"
shows the costs of insurance premiums in reference to the Smiths income.
Mortgage $1,200
Utilities $350
$91.41 *
Health insurance
$401(k) plan $240
* Health premiums are paid on a pretax basis into a premium conversion plan.
Groceries $500
Entertainment $400
Total $4,522
* Health premiums are paid on a pretax basis into a premium conversion plan.
Assets
Savings $20,000
House $160,000
Collectibles $22,000
Liability
Conclusion
With the help from all group members working on the project, the Smith family is
able to choose the best coverage they can get from various insurance plans. Their
homeowners insurance is provided by Travelers Insurance Company; their auto is
covered by Harford Insurance Company. They bought additional life insurance from
Western-Southern Life Company and additional long-term disability from Erie.
Virginia Power provides good health care coverage, term life insurance, a 401(k)
retirement plan, and long-term disability. The Smith family chose insurance plans
that best fit their needs.
KEY TAKEAWAYS
In this section you studied how the needs of a hypothetical family affect the
selection of insurance coverage and employee benefits:
DISCUSSION QUESTIONS
LEARNING OBJECTIVES
In this section we elaborate on the benefits and plan structure that can be
expected in a sample employee benefits portfolio:
Preface
This case, like Case 1, is a group project that is part of employee benefits classes
taught by the author of this textbook. Following is the employee benefits portfolio
of a compilation of the ten groups of the fall 2002 class (and some of the fall 2000
class), in the words of the students.The work of the following students is reflected
in this case: Donna Biddick, Lavonnia Bragg, Katrina Brand, Heather Cartes, Robert
Cloud, Maria Conway, Thomas Dabney Clay, Lillian Dunlevy, Daniel Fleming,
Shannon Fowlkes, Caroline Garrett, Barbara Guill, Steven Hall, Georgette Harris,
Shirelle Harris, Tyron Hinton, Tiffany Jefferson, Tennille McCarter, Pamela
Nicholson, Hiren Patel, Susan Shaban, Carolyn Shelburne, Gaurav Shrestha,
Stephanie Soucy, Christopher Speight, Cassandra Townsend, Geoff Watkins, and
Tresha White, from fall 2002. Also included is the work of Margaret Maslak and
Shelisa Artis from fall 2000. The case is a typical project that lasts for the students
throughout the semester. The students present portions of the case as the material
is covered in class. In most cases, the whole employee benefits portfolio of the
hypothetical company created by the students is presented at the conclusion of the
semester as part of the final grade. This case does not provide a long-term care
coverage plan. Most of the retirement plans offered by the hypothetical employers
of these projects are not realistic in terms of the amounts and variety. The students
are requested to provide a defined benefit plan, a defined contribution plan, and a
401(k) plan in order to experience the workings of these plans. The students did not
offer a complete cafeteria planonly a flexible spending account.The students used
information from the following companies and sources: Dominion Co.,
www.dominion.com; Dominion Virginia Power, http://www.dom.com/; Phillip
Morris, USA, http://www.philipmorrisusa.com/en/cms/Home/default.aspx;
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Chapter 23 Cases in Holistic Risk Management
The Board of Directors and the corporate executives of Galaxy Max, Inc., have
developed a comprehensive benefits package to meet the needs of our employees
and their families. This handbook includes a brief overview of the organization and
its structure and a detailed description of benefits related to group life insurance,
health care, dental and vision coverage, flexible spending accounts, and retirement
benefits. The information provided will enable you to understand your benefits.
General information may be secured from the companys Web site,
www.galaxymax.com. Additional questions may be addressed to the Human
Resources Department, 7500 Galaxy Max Road, Richmond, VA 23228; telephone
1-800-674-2900; e-mail hrgalaxymax@vcu.edu. Suggestions are always welcome as
we continue to improve customer service.
Employee Description
Galaxy Max employs 758 staff members: 338 full-time salaried and 420 hourly
employees. Our rapid growth in size and value allows us to provide a substantial
benefit package to salaried and full-time employees.
Employee Benefits
Galaxy Max has developed a competitive and comprehensive benefits package for
our employees because we value their service to the organization and we want to
maintain a healthy, motivated, and high-quality staff. Our commitment to
employees is to support their personal needs and financial goals for retention and
to reward dedicated individuals. The benefits package is summarized in Table 23.9
"Galaxy Max Benefits Package".
Health Optional
Dental Optional
Mission Statement
Galaxy Max provides you with basic life insurance at one times your annual base
pay (1 annual salary) at no cost to you. Benefits are rounded to the next higher
$1,000. The minimum benefit is $5,000. You may purchase supplemental coverage.
The maximum benefit is five times your current annual base pay or $1,000,000,
whichever is less. Table 23.10 "Group Term Life Insurance: Major Plan Provisions"
outlines the main features of the companys life insurance plan. The cost of
supplemental life insurance coverage is shown in Table 23.11 "Costs for
Supplemental Life and Dependent Life".
Basic life insurance is equal to one times your annual base payemployer
pays Additional coverage up to five times your annual base pay as
supplemental coverageyou pay (see costs in Table 23.11 "Costs for
Supplemental Life and Dependent Life")
Added coverage for dependentsyou pay (see costs in Table 23.11 "Costs for
Supplemental Life and Dependent Life")
Convertibility (in case of termination of the term life, you can convert the
policy to whole life policy without evidence of insurability)part of basic
coverage Accelerated benefits (living benefits)in case of becoming
terminally ill, you can collect up to 50 percent of the policy benefits while
still livingpart of basic coverage
Regular, full-time employees (working 32 hours per week or more) who are
Eligibility
active at work
When
coverage 30 days after employment date
begins
The company pays the full cost of basic life insurance; you pay for any
Cost additional coverage (supplements of 2, 3, 4, or 5 annual salary, and for
dependent coverage)
Provider,
A.M. Best Minnesota Life (Minnesota, USA), A++ Rating
Rating
Cost per Month per $1,000 of Cost per Month per $1,000 of
Age Age
Coverage Coverage
29 and
$0.06 5054 $0.42
under
70 and
4549 $0.25 $3.60
over
Amount Cost
$5,000 $0.58
$10,000 $1.15
$15,000 $1.73
$20,000 $2.31
$25,000 $2.88
Beneficiary
Termination
Coverage shall terminate automatically when any of the following conditions exist:
Accelerated Benefits
Benefits under the accidental death and dismemberment (AD&D) plan are in
addition to any benefits payable under the life insurance plan. AD&D benefits are
payable in the event of an accident resulting in the following:
Your death
Loss of one or more of your body parts (such as hand or foot)
Loss of sight in one or both eyes
Table 23.12 "AD&D Plan Provisions" outlines the main features of the Companys
AD&D plan. If you survive an accident but sustain certain injuries, AD&D benefits
would be payable as shown in Table 23.13 "AD&D Loss Provisions".
The company pays the full cost of basic AD&D insurance; you pay
Cost for any additional coverage (supplements of 2, 3, 4, or 5
annual salary)
Evidence of
Same as for regular group term life
insurability
If You Have This Loss You Will Receive This Percentage of Your AD&D Coverage
Life insurance will not pay out if you survive an accident; it pays only in the event
of your death.
Provider
Life insurance is provided by Minnesota Life Insurance Company, which is rated A++
by A.M. Best.
A life insurance claim was filed by Mary Jones after the death of her husband,
Robert, in June 2002. He died after a short battle with cancer. He was a full-time
employee at Galaxy Max for five years and his salary at the time was $55,000
annually. He has life insurance in the amount of three times his salary: $55,000 3 =
$165,000. Therefore, his benefit is $165,000, payable to his beneficiary, which is his
spouse, Mary Jones. Mrs. Jones filed the claim within two weeks of Mr. Joness
death. Mrs. Jones had to present a copy of his death certificate and fill out the
required forms. She was informed that she would receive her benefit within sixty
days from the date of the claim.
Mrs. Jones has chosen to receive the life insurance benefit in a lump-sum payment.
She received this payment fifty-eight days from the date of the claim.
Internal Revenue Service Code Section 101 provides that the death benefits are not
counted toward taxable income.
Table 23.14 "Sick Leave, Group Short-Term Disability, and Group Long-Term
DisabilityMajor Plan Provisions" summarizes all the disability plans provided by
Galaxy Max.
Table 23.14 Sick Leave, Group Short-Term Disability, and Group Long-Term
DisabilityMajor Plan Provisions
When
coverage 30 days after employment date
begins
The company pays the full cost of STD; employee pays for LTD through
Cost
payroll reduction
Evidence of
Required if joining after open enrollment
insurability
Employees do not pay taxes on premiums paid by employer for STD; but in
the case of receiving benefits, taxes will be paid on the benefits
Taxes
For LTD, employee pays the premium from income after taxes, and
benefits in the case of disability are nontaxable
Sick Leave
Benefits
The employee will receive regular pay for time missed due to illness or injury
(nonoccupational) up to seven days per calendar year.
Galaxy Max pays for sick leave from its operating budget.
Short-Term Disability
Definition of Disability
Disability is the total and continuous inability of the employee to perform each
and every duty of his or her regular occupation.
Benefits
Short-term disability (STD) benefits are 80 percent of salary up to $5,000 per month
after a seven-day waiting period. The maximum length of the benefit is six months.
There is no integration of benefits under short-term disability.
Premium
Galaxy Max pays STD premiums and deducts such as normal business expense.
Galaxy Max will continue to pay premiums for disabled employees.
Exclusions
For any period during which the employee is not under the care of a
physician
For any disability caused by an intentionally self-inflicted injury
If the employee is engaged in any occupation for remuneration
If the disability was incurred during war, whether declared or
undeclared
If the disability was incurred while participating in an assault or felony
If the disability is mental disease, alcoholism, or drug addiction
Termination
Disabled employees will not be considered terminated and, when able to return to
work, will not have to satisfy any waiting period for coverage.
Long-Term Disability
Definition of Disability
Long-term disability (LTD) is defined as the total and continuous inability of the
employee to engage in any and every gainful occupation for which he or she is
qualified or shall reasonably become qualified by reason of training, education, or
experience for the first two years. After two years, it is the inability to engage in
any gainful employment.
Benefits
Basic monthly earnings means your monthly salary in effect just prior to the date
disability begins. It includes earnings received from commissions and incentive
bonuses but not overtime pay or other extra compensation. Commissions and
incentive bonuses will be averaged for the thirty-six-month period of employment
just prior to the date disability begins.
Cost of Coverage
The employee will pay the full cost through payroll deduction. The Human
Resources representative will advise of the contribution amount, which is based on
a rate per $1,000 of your annual base pay. The cost of coverage is determined by the
insurance company, Aetna (rated A for excellent by A.M. Best). Galaxy Max will
notify you in advance in the event of a rate change.
LTD Exclusions
Taxation
Because the employee pays the entire premium from income after taxes, benefits
are not taxable to the employee.
Rehabilitation
Termination
Disabled employees will not be considered terminated and, if able to return to work,
will not have to satisfy any waiting period for coverage. Long-term disability
coverage cannot be converted upon termination of employment.
Galaxy Max offers two plans for health insurance, an HMO and PPO. The broad
benefits are described in Table 23.15 "Health Plan Provisions". The medical plans
pay the cost of necessary and reasonable medical expenses for non-work-related
illness or injury and are completely optional.
You may enroll when eligible. You may elect to enroll eligible dependents for
extra charges provided they meet the qualifications of a dependent.
Enrollment Annual open enrollment period for current plan participants is October 1 to
November 1 every year. Changes made during open enrollment become
effective January 1 the following year.
Waiting
30 days after the first day of employment
period
Employee only
You and Galaxy Max share the cost of coverage (see Table 23.17 "Employee
Cost
Premiums")
Insurers
Galaxy Max has chosen Healthkeepers, Inc., for HMO coverage. Healthkeepers most
recent A.M. Best rating is A (excellent). Cigna Healthcare of Virginia, Inc., is
Galaxy Maxs PPO provider and has also earned A.M. Bests rating of A. Benefits
paid are at the discretion of the insurance companies.
Benefits
The benefits under each plan are explained in Table 23.16 "HMO and PPO Plan
Benefits".
PPO out of
HMO PPO in Network
Network
Annual Deductible
$300/
None None individual,
$600/family
Outpatient Care
Coinsurance
Coinsurance (%) or Copay
Copay per Visit ($) (%) per
($) per Visit
Visit
Primary care
$10 $15* 30%
physician
Diagnostic labs/X-
Fully covered 10% 30%
rays
Mammogram
$20 20% 30%
screenings
Ob/gyn visit
$10 $15 30%
(includes pelvic
Coverage includes annual checkups, annual gynecological exam and pap smear,
prostate specific antigen (PSA) test and prostate exams for men age forty and over,
one baseline mammogram for women ages thirty-five to thirty-nine, annual
mammogram for women age forty and over, and annual colorectal cancer screening;
up to $200 per calendar year for family members age seven and older for all other
routine immunizations, labs, and X-rays done in connection with annual checkups
whether received in-network or out-of-network.
PPO out of
HMO PPO in Network
Network
Coinsurance
Coinsurance (%) or Copay
Copay per Visit ($) (%) per
($) per Visit
Visit
In-hospital
Fully covered 10% 30%
physicians services
Coverage includes annual checkups, annual gynecological exam and pap smear,
prostate specific antigen (PSA) test and prostate exams for men age forty and over,
one baseline mammogram for women ages thirty-five to thirty-nine, annual
mammogram for women age forty and over, and annual colorectal cancer screening;
up to $200 per calendar year for family members age seven and older for all other
routine immunizations, labs, and X-rays done in connection with annual checkups
whether received in-network or out-of-network.
PPO out of
HMO PPO in Network
Network
In-patient mental
$250 plus 10% per
health and substance $250 per admission 30%
admission
abuse
Durable medical
Fully covered up to 10%; limited to $5,000 per
equipment and 30%
$1,000 per calendar year calendar year
supplies
Lifetime Maximum
Coverage includes annual checkups, annual gynecological exam and pap smear,
prostate specific antigen (PSA) test and prostate exams for men age forty and over,
one baseline mammogram for women ages thirty-five to thirty-nine, annual
mammogram for women age forty and over, and annual colorectal cancer screening;
up to $200 per calendar year for family members age seven and older for all other
routine immunizations, labs, and X-rays done in connection with annual checkups
whether received in-network or out-of-network.
Financing
Galaxy Max will pay a generous 85 percent of the health care premiums. Table 23.17
"Employee Premiums" lists employee obligations.
Coverage Area
The PPO is comprised of specific in-network offices. Consult your Benefits Liaison
for a complete list of providers in your area. All employees residing in Virginia are
considered in-area.
Exclusions
The items listed below, among others, are not covered in any of the plans. If you
have any questions regarding the coverage of a treatment or service, you must
contact the appropriate provider.
Termination of Coverage
Conversion
The employee may convert to individual health coverage within thirty-one days of
losing eligibility. Galaxy Max complies with all local, state, and federal legislation
with regard to group health plans.
COBRA
The Consolidated Omnibus Budget Reconciliation Act (COBRA) extends coverage for
eighteen to thirty-six months following a qualifying eventA qualifying event is a
marriage or divorce, adoption of a child, death of a covered dependent, a change in
status or eligibility of a dependent, and so forth. that causes the employee to lose
eligibility. The employer does not have to pay the premium, and the premium may
be increased to a maximum of 102 percent of the group rate. The employee may
elect COBRA within sixty days of the qualifying event. As noted above, the thirty-
one-day period of conversion may be applied after COBRA coverage. COBRA does not
protect an employee who is fired for cause.
HIPAA
The Health Insurance Portability and Accountability Act (HIPAA) forbids insurers
from imposing preexisting-condition exclusions when an eligible individual
transfers from one plan to another. After you have been covered in a health plan for
twelve months, preexisting-condition exclusions are no longer in effect. Prior
coverage would not qualify if there is a break in health insurance coverage for more
than sixty-three days.
Group Dental
Group dental provides coverage for any dental work you may incur. Like group
medical, group dental has many variations, and coverage can be obtained from two
different providers. However, there are some clear differences between the two
plans. For example, group dental plans are more likely to provide benefits on a fee-
for-service basis but provide the benefits under a managed-care arrangement.
Eligibility
Full-time (thirty-five hours or more per week) and salaried employees are eligible
to enroll for group dental coverage. You may enroll your spouse and child(ren) for
an additional premium.
Waiting Period
You may enroll when eligible. Coverage becomes effective the first day of the
month following employment. For example, if you start employment on the first of
the month, coverage begins immediately.
Plan Highlights
Table 23.18 "Major Dental Plan Provisions" summarizes the key features of the
dental plan, including benefits, types of service, and cost information.
Examples of Items
Coverage Plan Pays Up To
Covered
Replacement of natural
Prosthodontics teeth with bridgework or 50% R&C for bridgework
dentures
Straightening of teeth
Orthodontics 50% of R&C for orthodontic services
with braces
Conversion
Disability
Death
Reduction in hours to less than full-time
Provider
Galaxy Max has chosen Cigna Corporation for dental coverage because the company
has a strong presence in the insurance business and has been one of the leaders in
coverage. Cignas A.M. Best rating is NR-5, meaning that they have not been
formally evaluated for the purpose of assigning a rating opinion.
To accommodate the needs of our diverse work force, Galaxy Max has created a
flexible spending account (FSA) plan to help employees to meet expenses that are
not covered under any benefit plan. Money deposited in these accounts is not taxed
when it goes into the accounts or when it is paid back to you. Employees can use
these pretax dollars to pay for miscellaneous items such as eyeglasses or
unreimbursed medical/dental expenses. This plan also allows employees to pay
dependent care expenses with pretax dollars. Any amount not spent at the end of
the plan year is forfeited by the employee (use it or lose it). See Table 23.19
"Summary of FSA: Major Plan Provisions" for details. In addition, a premium
conversion plan is offered to employees for payment of health insurance premiums
on a pretax basis.
Employment date; or
When coverage
Each January, following annual open enrollment; or
begins
Date of life event
Galaxy Max offers to its eligible employees a defined benefit pension plan. The
pension plan is designed to provide you or your beneficiary with monthly benefit
payments at retirement. The pension plan is funded entirely by the company;
employees do not contribute. In addition, Galaxy Max offers a 401(k) plan and a
profit-sharing plan.
Normal You may retire and receive normal retirement benefits the first day of the
retirement month on or after your sixty-fifth birthday
You may retire and receive an early retirement benefit on or before you
Early reach age sixty-five
retirement You are eligible for early retirement on the first day of the month on or after
your fifty-fifth birthday with three years of vesting service
You become fully vested when you complete three years of vesting service
Vesting (including vesting service with an acquired company) or reach age sixty-five
Vesting credit begins when you are eligible for the pension program
Payments
Your pension benefit is paid to you in monthly installments at the end of the
month. Your benefits will be paid as a lump-sum payment if the present value of
your pension is $5,000 or less. The normal form of benefit paid by the retirement
plan is based on your marital status. Unless you elect a different option, you will
receive your benefit in one of the following forms, which are actuarially equivalent:
The survivorship option pays you for as long as you live. When you die, benefits
continue to be paid to your designated beneficiary, assuming your beneficiary
survives you. Written spousal consent is required before you can designate a
beneficiary other than your spouse. Benefits are reduced for the survivorship
option because payments will be made over two lives rather than one. Payments
depend on your age and your beneficiarys age when you begin receiving payments.
If you choose the survivorship option and your beneficiary dies before you do, your
payment will be increased to the amount that you would have received under the
single life option. Additionally, you may choose the amount (50 percent, 75 percent,
or 100 percent) your surviving beneficiary will receive after you die.
The traditional formula used in calculating your retirement benefit is based on your
final average salary, your creditable service, and the Social Securitycovered
compensation level based on your age. Your retirement pension benefit may not be
more than 100 percent of your final average salary, or $160,000 in 2002. These
formula components are outlined below. See Table 23.21 "Example of Defined
Benefit Formula" for an example of how the formula works.
Suppose Joe, a sales representative for Galaxy Max, was born in 1942 and retired after
thirty years of service to Galaxy Max with a final average salary of $40,000. At the time of
Joes retirement, the Social Securitycovered compensation level is $37,212. To calculate
Joes benefit:
($40,000
2. Multiply Joes final average salary in excess of Social
$37,212) 1.8% =
Securitycovered compensation level by the excess benefit percentage
$50
Your final average salary is your highest average annual compensation during any
consecutive sixty-month period. It includes base pay, commission payments,
bonuses, and overtime.
Creditable Service
Your service with Galaxy Max, including approved leaves of absence up to six
months, certain periods of military and public service, and periods in which you are
totally disabled (as defined in the LTD plan), is considered your creditable service.
Service for part-time work is reduced to the equivalent portion of the year worked.
The average of the Social Security wage bases (maximum amount on which you pay
Social Security taxes) for the thirty-five years before the date of your retirement is
the Social Security compensation level that is used to calculate your benefits. These
amounts change each year according to the Covered Compensation Table provided
by the Social Security Administration.
Vesting
We at Galaxy Max chose to use a cliff vesting option. You become 100 percent vested
after three years of creditable service. Our plan provides you with a cash settlement
option if your employment at Galaxy Max is terminated. The cash settlement option
is effective on your termination date. This distribution is considered taxable income
in the year the distribution is made. The only exception to this rule is if you choose
to shift this payment into an IRA.
Loans
Distributions
As a valued employee of Galaxy Max, you or your beneficiaries may choose one of
the following distribution options:
Guaranteed Payment
You may choose to have your pension payments guaranteed for a certain period of
time after retirement. The payment options include either five or ten years for a
single life pension or five years for a survivorship pension benefit.
Lump-Sum Payment
You may request a lump-sum payment of $1,000 or more (in $100 increments) to
your designated beneficiary from your pension benefit, payable after you die.
If you retire early and want to start receiving benefits before age sixty-two, you
may choose this payment feature. You will receive larger benefit payments prior to
age sixty-two and then receive lower benefit payments upon reaching age sixty-
two. At age sixty-two, you will be eligible to receive Social Security benefits. The
intent of this plan is to provide level retirement income before and after Social
Security payments begin at age sixty-two.
Depending on your age and length of service, you may choose normal retirement or
early retirement. Normal retirement is when you retire at or after age sixty-five. If
you choose this option, you will receive normal retirement pension benefits.
Early Retirement
You become eligible for early retirement benefits when you reach age fifty-five with
three years of vested service. You can retire on the first day of any month on or
after your fifty-fifth birthday. If you retire before you reach age sixty-five, the date
you retire will be known as your early retirement date.
Benefits for early retirement are less than normal retirement benefits because the
plan adjusts the payment amount to allow the benefits to be paid over a longer
period of time. The amount of your normal retirement benefit is available to you,
without reduction, if you retire early on or after your sixtieth birthday. If you retire
on or after your fifty-fifth birthday and before your sixtieth birthday, your pension
benefit will be reduced, as explained in Table 23.22 "Early Retirement Reduction in
Defined Benefit Plan".
If you retire between the ages of fifty-eight and sixty, your pension benefit will be reduced
by 0.25% for each month that remains until your sixtieth birthday. For example, if you
retire on your fifty-eighth birthday, your pension will be reduced by (24 months 0.25%
per month) = 6%. If you retire between the ages of fifty-five and fifty-eight, your pension
will be reduced by that 6% plus an additional 0.50% for each month that remains until your
fifty-eighth birthday. For example, if you retire on your fifty-sixth birthday, your benefit
will be reduced by (6% + [24 months 0.50% per month]) = 18%. This table shows the
percentage your benefit would be reduced if you retired on your birthday.
60 or older None
59 3%
58 6%
57 12%
56 18%
55 24%
The benefit in Galaxy Maxs defined plan is protected by the Pension Benefit
Guaranty Corporation (PBGC). The cost of $19 per year per employee is paid by
Galaxy Max.
401(k) Plan
Galaxy Max offers you a Section 401(k) plan, hereinafter referred to as the Galaxy
Max 401(k) Plan, as a supplement to the retirement plan. You have the opportunity
to put aside salary dollars on a pretax basis, and Galaxy Max makes employer-
matching contributions to help build retirement savings more quickly. You can
choose your own level of deferral, if any. The plan also offers you several
investment options with varying portfolios to allow your savings to grow over time.
Taxes are deferred on employer matching contributions, your pretax deferral, and
investment returns until you withdraw the funds from your account.
Eligibility
All full-time and part-time employees are eligible. You become eligible for the
Galaxy Max 401(k) Plan after completing one year of continuous service and must
complete at least 1,000 hours of service during the year. Your enrollment
commences on the first day of the month following the completion of that first year
of service. You are not eligible to participate in the plan if you are no longer an
employee as of fiscal year end or if you are a temporary employee.
Maximum Contributions
For employees under the age of fifty, the 2009 contribution limit is $16,500. If you
are fifty years old or older, this limit is $22,000 in 2009.
Employer Matching
During each of your first five years of service, Galaxy Max will match 80 percent
($0.80 for every $1.00) that you contribute to the plan, up to 6 percent of your
salary. After five years of service, our matching increases to 100 percent ($1.00 for
every $1.00) that you contribute to the plan, up to 6 percent of your salary.
Vesting
Vesting is your right to the money in your 401(k) account. You are always 100
percent vested in the value of your own contributions and the earnings on your
investments. You are vested on Galaxy Maxs matching contributions at the rate of
20 percent each year of service, and thus fully vested after five years. For example,
if you left Galaxy Max three full years after joining the 401(k) plan, you would have
the right to all your investments and their earnings and to 60 percent of the
matching funds plus their earnings. The vesting schedule for the 401(k) matching
contribution is summarized in Table 23.23 "Galaxy Max 401(k) Matching
Contribution Vesting Schedule" below.
1 20%
2 40%
3 60%
4 80%
5 100%
Withdrawals
In-service withdrawals for certain hardships are permitted under the Galaxy Max
401(k) Plan, as long as two conditions are met:
2. The funds are not reasonably available from any other resources. The
requirements are met if the following circumstances exist:
Contributions will be suspended twelve months after the distribution and the
maximum contribution in the next year will be reduced by the amount contributed
in the prior year.
Loans
The minimum loan amount is $1,000. The maximum loan amount is the lesser of
$50,000 or 50 percent of your vested balance. The following two types of loans are
available under the plan.
General-Purpose
You can take between six and sixty months to repay a general-purpose loan.
Primary Residence
You can take between sixty-one and 180 months to repay this loan. Eligible
residences include house, condominium, co-op, mobile home, new home
construction, or land for new construction or mobile home.
You bear the risk of investments in your Galaxy Max 401(k) Savings Account.
However, you can choose from several investment funds through the SunTrust
Classic Funds Family, commonly referred to as the STI Classic Funds. This will
enable you to select your own desired level of risk.
Investment funds range from a fixed income fund (with very low risk and
corresponding low return potential) to higher risk equity funds with higher return
potential. The funds that you may choose from are as listed:
Termination
You will be terminated from the Galaxy Max 401(k) Plan if you cease to be employed
by Galaxy Max.
Profit-Sharing Plan
Over the past five years, Galaxy Max has been financially successful because of the
dedication and talent of our valued employees. We started the profit-sharing
program to give you the opportunity to share in the success of our wonderful
company. The primary purpose of this plan is to help you build retirement income.
Along with the Galaxy Max 401(k) Plan and the defined benefit plan, the profit-
sharing plan can provide you with the foundation for a financially secure
retirement.
Eligibility
The eligibility requirements for the Galaxy Max Profit-Sharing Plan are the same as
the Galaxy Max 401(k) Plan. Please refer to that section.
Contributions
Each year, Galaxy Max will contribute a portion of its pretax income for profit-
sharing purposes. The contribution is made after the end of each fiscal year. The
amount allocated to your account is based on a formula that includes your
compensation during the fiscal year. This contribution is made at the discretion of
Galaxy Max and cannot be guaranteed every year.
Profit-Sharing Formula
Here is how the allocation formula works. Once you become a participant, we
evaluate your eligible compensation (base pay, commissions, and bonuses) and the
eligible compensation of all Galaxy Max employees. Your portion of the amount of
profits we contribute is the proportion of your eligible compensation to that of all
employees. For example, suppose that Galaxy Max will contribute $200,000 to the
profit-sharing plan, your eligible compensation is $35,000, and the eligible
compensation of all employees is $950,000. Your share would be $35,000/$950,000,
or 3.68 percent, of $200,000. Therefore, the allocation to your account would be
$7,368.42. These numbers are used only as an example. (The total contribution from
Galaxy Max and eligible compensation from all employees is much larger.)
The plans trustee, SunTrust Bank, will invest contributions to your account. At the
end of each fiscal year, investment earnings are allocated to your profit-sharing
account. Because the value of your investments will fluctuate, you will assume the
investment risk. Therefore, your account balance will increase or decrease in value
from year to year.
Once all accounts have been reconciled for the fiscal year, you will receive an
annual statement of your account. It will include your beginning balance, allocation
of investment income, contributions, and ending balance. These statements are
typically distributed to you four to five months after the fiscal year end.
Vesting
You begin earning ownership rights to your account once you complete three
continuous years of service. After your second full year, you are 20 percent vested,
and you earn another 20 percent each year. Once you complete six years of service,
you are fully vested. If your employment ends because you become permanently
disabled, die, or leave Galaxy Max after age sixty-five with at least five years of
service, you and your beneficiary will be entitled to receive the full value of your
account, regardless of your vesting. The vesting schedule for profit-sharing plan
contributions is presented in Table 23.24 "Galaxy Max Profit-Sharing Contribution
Vesting Schedule" below.
2 years 20%
3 years 40%
4 years 60%
5 years 80%
Loans
You may borrow from your profit-sharing account under the same provisions that
apply to 401(k) loans. Please refer to that section for details.
Distributions
You can receive the vested portion of your account after you leave Galaxy Max,
retire, or become permanently and totally disabled. Your designated beneficiary
will receive your vested account balance if you die before receiving your benefit.
If your vested account balance is $6,000 or less, you or your beneficiary will receive
the payment in a single lump sum. If your account balance is more than $6,000, you
or your beneficiary can take a single lump sum, receive annual installments for up
to five years, or delay receiving distributions until a later time. Generally, you can
roll over the vested portion of your account balance into another qualified
retirement account or individual retirement account (IRA) so that you can defer
paying federal income taxes.
You will be terminated from the plan if you cease to be employed by Galaxy Max.
Limitations on Contributions
For all three plans, certain legal limits are placed on contributions to your account.
The combined annual contributions to your retirement plans cannot exceed $40,000
or 100 percent of your compensation, whichever is lower. This limit applies to both
your and Galaxy Maxs contributions to your 401(k), profit-sharing, and defined
benefit plans, unless the defined benefit plan requires (under the minimum
required annual contribution) a greater annual contribution. Thus, in summary, all
qualified retirement plans combined cannot exceed the $40,000 or 100 percent of
compensation annual limit, unless more contribution is necessary to meet the
minimum requirements under the defined benefit plans.
Conclusion
The management of Galaxy Max hopes that the benefits we offer are clear to you.
Our studies indicate that our benefits package far exceeds the norms of our
industry. We are very interested in your well-being, and this has motivated us to
exceed our peer groups offerings. Should you have questions, please contact the
Human Resources Department, 7500 Galaxy Max Road, Richmond, VA 23228;
telephone 1-800-674-2900; e-mail hrgalaxymax@vcu.edu. Suggestions are always
welcome as we continue to improve service to our employees.
KEY TAKEAWAYS
DISCUSSION QUESTIONS
LEARNING OBJECTIVES
Preface
Case 3, unlike Cases 1 and 2, is designed for risk management students who are
interested in the more complex types of insurance coverage designed for large
1114
Chapter 23 Cases in Holistic Risk Management
Introduction
Alternative risk transfer is an evolving area of risk finance where programs are
often tailored for the individual company. Insurers have been expanding their
offerings and creativity in designing methods of financing corporate risk. This new
generation of financing risk is becoming more and more mainstream as more
experience is gained by insurers, brokers, and risk managers.
23.3 Case 3: Nontraditional Insurance Programs and Application to the Hypothetical Loco Corporation 1115
Chapter 23 Cases in Holistic Risk Management
Risk managers began taking and maintaining long-term control of the process. They
have been looking for cost, accounting, and tax efficiencies. Thus, in addition to
using captives and risk retention groups (discussed in Chapter 6 "The Insurance
Solution and Institutions" and Chapter 8 "Insurance Markets and Regulation"), they
have been establishing customized finite risk programs, multiyear, multiline
integrated risk programs, and they have been insuring risks that previously were
once considered uninsurable. We will first delve into explaining these new-
generation products before working on the LOCO case. The explanation of each
program includes examples from real companies.
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Norwest, a bank with assets of $71.4 billion and 43,000 staff members in 3,000
locations (in 1997) across the United States, Canada, the Caribbean, Central and
South America, and Asia was another company that could provide an example of
23.3 Case 3: Nontraditional Insurance Programs and Application to the Hypothetical Loco Corporation 1117
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what attracts corporations to the new concept. Until 1994, Norwest had traditional
coverages. Each class of risk had an individual limit of self-insurance, a layer of
commercial insurance, and an excess coverage. There were many risks that were
not covered by insurance because of lack of availability.
Coca-Cola was another major company that was motivated to use an integrated
program.David G. May, The Real Thing, Financial Executive 13, no. 3 (1997): 42.
Allison OSullivan, Coca-Colas director of risk management, was looking for a
program that would do the following:
23.3 Case 3: Nontraditional Insurance Programs and Application to the Hypothetical Loco Corporation 1118
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occurring. In the multitrigger policy, the insurer recognizes this lower probability
in the pricing of the product. Thus, it would cost more to buy the earthquake
insurance on a stand-alone basis than it would cost to buy earthquake insurance
contingent on some other event taking place within that contract time period, such
as a shift in foreign exchange or a shift in the cost of a key raw material to the
client. Insureds who are concerned only with two very bad losses happening at the
same time are those who would be interested in a multitrigger program.
The U.S., European, and Bermuda markets all have been actively participating in
various program combinations. XL and CIGNA were among the first players when
they teamed up to combine property and casualty lines of coverage. The market
demanded broader coverage, and the two insurers, in a very short time, have
expanded their offerings. Another active player is Swiss Re with its BETA program.
AIG, Chubb, and Liberty Mutual are active in the U.S. market.
Most of this capacity is not dependent on reinsurance. Some insurers offer one-stop
shopping, while in other cases the structure uses a number of insurers. Coca-Colas
program, for example, was provided ultimately by several carriers.
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own risk profile. These products are individualized and require intensive study to
respond to the clients needs.
The typical corporations looking into these types of programs are Fortune 200
corporationscompanies needing $100 million to $200 million or more in
coverage.John P. Mello, Jr., Paradise, or Pipe Dream? CFO: The Magazine for Chief
Financial Officers 13, no. 2 (1997): 73. These are corporations that have much larger
and complex risks and need to work with a few carriers.
FMR had two separate integrated programs, as shown in Figure 23.5 "Fidelity
Investments Integrated Risk Program".Dave Lenckus, Concentric Risk Programs
Means Big SavingInnovative Programs to Save FMR Time, Money, Business
Insurance, April 14, 1997, 98. FMRs program for its mutual funds combines the
government mandated fidelity bonds and E&O liability insurance. FMR took a very
conservative approach, with a separate program to protect its mutual funds clients
from employees dishonesty or mistakes. For the other part of the company, the
corporate side, the coverage included consolidated financial institutions bond
coverage, which protects the employee benefits plans and protects against
employees dishonesty. The other coverages were Directors & Officers (D&O),
stockbrokers Errors & Omissions (E&O), corporate E&O, E&O liability for charitable
gifts, partnership liability, and electronic and computer crime. The corporate
program was designed to respond to the risk management needs of the corporate
side, which was on the cutting edge on a lot of things and therefore less
conservative than the mutual funds concentric program.
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Integrated programs include coverages such as D&O, fiduciary liability, crime, E&O,
and employment practices liability. The following are examples of the coverages
that may be included in an integrated program under one aggregate limit:
Property
Business interruption
General, products, and automobile liabilities
Workers compensation
Marine liabilities and cargo
Crime
D&O liability
E&O liability
Product recalls
Product tampering
Political risks
23.3 Case 3: Nontraditional Insurance Programs and Application to the Hypothetical Loco Corporation 1121
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Environmental liabilities
Programs may be structured with one aggregate deductible for the term of the
policy or with separate, per occurrence deductibles. Norwests integrated program
had a $25 million aggregate retention over a five-year term. They had another five-
year aggregate retention that was covered by its Vermont-based captive, Superior
Guaranty Insurance Company. Above their retention, they had a finite risk layer
(explained in the next section of this case) of $50 million. Fifty percent of this layer
was covered by the captive. The other 50 percent was covered by American
International Group (AIG).
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The FMR aggregate programs are also structured over retentions. As discussed
previously, FMR had two separate programs. The mutual funds program had
multiple deductibles and the captive was not used.Dave Lenckus, Reinsurance
Program Strives to Find the Right Blend of Risks, Business Insurance, April 14, 1997,
100. For the corporate concentric program, FMRs captive, Fidvest Ltd., wrote up to
$10 million in aggregate limits, as shown in Figure 23.5 "Fidelity Investments
Integrated Risk Program". Fidvests retention included most of the risks except for
the trustees E&O. The captive retained only $5 million of this risk.
The decision about the appropriate retention levels forces the risk manager to look
at risks and risk tolerance.
As noted previously, selecting the limit that will cover all included losses over the
entire multiyear period is an estimate based on a number of factors. But that
estimate can prove to be wrong. The insured could use up his or her entire
aggregate limit before the end of the term. For that reason, it is important to
include one or more reinstatement provisions. Negotiating a reinstatement
provision on the front end is critical to provide the following:
The FMR program contained reinstatement provisions in the event its aggregated
limits were exhausted. Figure 23.5 "Fidelity Investments Integrated Risk Program"
illustrates that FMR had one reinstatement on the corporate program and an option
to purchase two additional reinstatements for the funds program.
What Are the Overall Advantages of the Integrated Risk Concept for
Insureds?
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The risk manager does not need to shop every year and prepare for renewals. The
worry about the volatility of the traditional, cyclical insurance market is also
reduced. These programs are expected to increase in prevalence. They have been
combined with other new-generation products, such as finite risk, which is
discussed next.
Finite risk programs are a way to finance risk assumptions that have their origins in
arrangements between insurers and reinsurers. Premiums paid by the corporation
to finance potential losses are placed in an experience fund that is held by the
insurer. The insured is paying for its own losses through a systematic payment plan
over time. Thus, it not subjected to the earnings volatility that can occur through
self-insuring. Finite risk programs4 allow the insured to share in the underwriting
profit and investment income that accrues on its premiums if loss experience is
favorable and to recognize the individual risk transfer needs of each corporation.
Consequently, each contract is unique. Generally, finite programs have the
following characteristics in common:
Multiyear termat least three years, but may be five or even ten years
Overall aggregate limitoften one limit applies; thus all losses of any
type and line will be paid until they reach the aggregate limit
Experience fund is established for the insureds lossesmonies are paid
into the fund and held by the insurer over the time period
Interest earned on fundsa negotiated interest is earned on the funds
that the insured has on deposit with the insurer
Element of risk transferoften includes some traditional risk transfer
for the program to be recognized as insurance by the IRS
Designed for each insured individually using manuscripted policy
forms
The key difference between the finite risk program and traditional insurance
4. Allow insureds to share in the coverage is that the funds paid to the insurer
underwriting profit and
investment income that
accrues on premiums if loss earn interest, which is credited to the insured, and
experience is favorable and
recognize firms individual risk
are refundable to the insured.
transfer needs.
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Figure 23.6 "Finite Risk Program of Fidelity Investments, $100 Million Coverage
Limit" shows an example of how a finite risk program operates. In this example, the
insured has implemented a three-year program with a $100 million aggregate
coverage limit for the entire period, with annual premium payments of $20 million.
Thus, the insured has promised to pay $60 million over the three-year period, as
denoted by increasing increments for each year on the graph. Actual risk
transferthat is, the conventional insurance layer of the finit eprogramexists
between the $60 million that the insured pays in and the $100 million limit. Thus,
there is $40 million in risk transfer. This risk transfer layer is shown in dark blue on
the graph.
At the end of the three-year period, the deposits may be returned to the insured
with interest, less any losses. As will be discussed later, a return of funds constitutes
a taxable event and the insured may choose to roll the funds over to the next term.
Figure 23.6 Finite Risk Program of Fidelity Investments, $100 Million Coverage Limit
In the example in Figure 23.6 "Finite Risk Program of Fidelity Investments, $100
Million Coverage Limit", the insured has paid in $20 million in the first year. But
what if losses exceed $20 million in the first year? This is the timing risk that the
23.3 Case 3: Nontraditional Insurance Programs and Application to the Hypothetical Loco Corporation 1125
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insurer takesthe risk that losses will exceed the insureds depositin which case,
the insurer has to pay for them prior to having received the funds from the insured.
The graph shows the timing risk in white. It is the difference between the insureds
accumulated payments into the fund and the total amount the insured promises to
pay into the fund over the entire time period (in this example, $60 million over a
three-year period). The timing layer is similar to a line of credit for the insured. The
insured must still pay the insurer for the losses that were paid out in advance, or
loaned to the insured.
The FMR Corporation structured its finite program around its integrated risk
program. Figure 23.7 "Structure of Fidelity Investments Finite Risk and Integrated
Risk Programs" displays how FMRs finite program fits around the two integrated
programs described previously. The finite program is outlined with dotted lines. An
important part of its program was the inclusion of risks that are traditionally
uninsurable. If a loss occurs under the finite program that is also covered by its
underlying integrated coverage, the finite program acts as a layer above the
integrated limit. Thus, the finite risk protection is pierced when the integrated limit
is exhaustedno deductible is incurred under the finite program. If a loss occurs
under the finite program and it is not covered by the integrated program, a
$100,000 aggregate deductible applies. Such losses are paid if and when aggregate
losses under the finite program reach $100,000.
A finite program can fit into a corporations risk-financing structure in other ways
as well. It can be used to fund primary losses. It can also be used in intermediate
layers to stabilize infrequent but periodic losses.Gregory K. Myers, Alternative Risk
Financing in the Traditional Insurance Marketplace, John Liner Review 10, no. 3
(1996): 13.
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Figure 23.7 Structure of Fidelity Investments Finite Risk and Integrated Risk Programs
Now, let us show an example of how the experience fund works. Table 23.25 "Finite
Risk Experience Fund" displays a chart of an experience fund with annual deposits
of $20 million for a three-year term. Assume an annual interest rate of 6 percent is
credited quarterly to the fund. Also assume that the interest accrues on a tax-free
basis, as would be the case if the fund is placed with an offshore insurer where
investment income is not subject to taxation. In this example, the insured incurs a
$5 million loss in year two. At the end of the term, the insureds balance is
$62,120,260. The funds may be returned to the insured or rolled over to another
contract term.
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March 31,
$20,300,000 $300,000
1997
Sept. 30,
$20,913,568 $309,068
1997
March 31,
$41,845,680 $618,409
1998
March 31,
($5,000,000) $36,845,680
1998
Sept. 30,
$37,959,340 $560,975
1998
March 31,
$59,406,661 $877,931
1999
Sept. 30,
$61,202,227 $904,466
1999
Pricing
Pricing of the product will vary. There can be an additional premium to pay for the
risk transfer and timing risk elements. Alternatively, the insurers risk can be paid
for by the spread between the interest it expects to earn on the funds and the
interest credited to the insured.
Finite programs typically are used by large corporations with one or more of the
following characteristics:
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Finite risk programs can be structured to include any type of risk, contingent on
approval by the companys auditors.Types of risks included in the program may be
restricted by the corporations external auditors. They are touted as a means of
financing traditionally uninsurable risks. Thus, a corporation looks at its own risk
profile to determine the appropriate risks to include in the program. A corporation
can do this in one or more of the following ways:
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Finite risk programs are becoming increasingly popular. But they are not without
disadvantages:
Tax and accounting questionsaccounting and tax rules say that there
must be more than timing and interest rate risk for the insurer in
order for the insureds payments to be tax deductible. The tax code
requires that the finite financing arrangement involve real
underwriting risk transfer with a reasonable expectation of loss.
Transactions that do not meet tax and accounting rules regarding risk
transfer will be treated as deposits. The main requirement is that the
insurer (or reinsurer) must stand to realize a significant loss from the
transaction. Judy Lindenmayer mentions a general rule of thumb that
has developed, whereby 10 to 15 percent of the estimated exposure
should be transferred to the insurer, and the risk so transferred must
have a 10 to 20 percent chance of loss. Actuaries, however, caution
against specifying probability thresholds because they do not allow for
the differences in frequency and severity of various exposures.What is
Risk Transfer in Reinsurance? Comments on Financial Accounting
Standard 113, Contingencies, September/October 1997, 5053. (Based
on a report of the American Academy of Actuaries Committee on
Property and Liability Issues.) Evaluation of the risk transfer element is
a complex process that requires a complete understanding of the
transaction, the details of which are beyond the scope of this course.
The premiums should not be construed as a deposit for accounting
purposes. The risk transfer element must be verified by outside
auditors. It is permissible to base the tax and accounting for the finite
program on two different foundations. However, doing so may draw
the attention of income tax auditors.
Any monies that are returned to the insured at the end of the period
constitute taxable income. To avoid a taxable event, the insured can
roll the funds over to the next term.
Time-consuming and complex to developalthough finite programs
can save considerable time once they are in place, they can take up to a
year to develop.
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Since its formation in 1945, LOCO Corporation has been a leader in the investment
banking field. Its largest and best known subsidiary is Loyalty Investment, an
investment advisory and management company for a family of one hundred funds.
Through a network of thirty-two principal offices in twenty-two countries, LOCO
and Loyalty Investment offer a complete range of financial services, including
online trading and research assistance to corporations, institutions, and individuals
throughout the world. LOCO, through another subsidiary called Loyalty Brokerage
Group, engages in sales and trading on a discounted fee basis. It uses the most
advanced technologies available in the market. Approximately 50 percent of trades
(for both the direct funds and through the brokerage firm) are handled online,
another 40 percent are handled over the telephone, and 10 percent are handled in
person at sales offices around the world.
LOCO also provides financial underwriting services and advice to corporations and
governments around the world regarding their capital structures. Its products and
services include corporate finance, real estate, project finance and leasing, debt and
equity capital markets, mergers and acquisitions, and restructuring.
23.3 Case 3: Nontraditional Insurance Programs and Application to the Hypothetical Loco Corporation 1131
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operating only in the United States and the United Kingdom. The
nonsupport staff is licensed to sell insurance and securities.
Loyalwarea financial services software producer.
LOCO has offices in Europe, the Middle East, the Far East, South Africa, Australia,
and South America and is expanding into Russia and China. LOCOs financial
highlights are shown in Table 23.26 "LOCO Corporation Financial Highlights", which
provides information on LOCOs size, liquidity, and debt positions in 1995 and 1996.
Although LOCO has been enjoying increased revenues, LOCOs profit margins have
decreased from 1995 to 1996. Return on equity has remained stagnant for the last
two years.
23.3 Case 3: Nontraditional Insurance Programs and Application to the Hypothetical Loco Corporation 1132
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Most likely, the separation of operations was the reason that the risk management
operations were handled separately as well. Dan and his chief financial officer
(CFO), Elaine Matthews, were instrumental in effecting a change. They knew that
economies of scale could be realized by consolidating the risk management function
on a global basis. Elaine believes in the holistic approach to risk management and
involves Dan in the management of all the risks facing the corporation, be they
financial, business, or event-type risks that were traditionally under the authority
of the risk manager.
LOCO has a rather large amount of reserves on its balance sheet. A considerable
portion of the reserves are attributable to the expected E&O losses that were
assumed from Kendu Financial Group when it was acquired in 1994. Another big
chunk of the reserve amount is attributable to self-insured workers compensation
losses. LOCO has self-insured its domestic and international workers compensation
risk since the early 1980s. Even though claims were handled by a third-party
administrator, two individuals on Dans staff have devoted their full-time work to
workers compensation issues. Prompted by soft market conditions, Dan decided to
insure the risk. He secured Foreign Voluntary Workers Compensation coverage for
U.S. workers abroad and for foreign nationals, as well as workers compensation
coverage for the domestic employees. The company has built up fairly significant
loss obligations from self-insuring.
LOCOs business has been changing rapidly over the last several years. It has
become more global, more dependent on technology, and more diversified in its
operations. This changing risk environment, along with the corporations cost-
cutting efforts, has compelled Dan to embark on a comprehensive assessment of his
risk management department and the corporate risk profile.
The hypothetical LOCO Corporation was created to help you apply the concepts of
alternative risk financing that you studied in this chapter. Familiarize yourself with
23.3 Case 3: Nontraditional Insurance Programs and Application to the Hypothetical Loco Corporation 1133
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the features of LOCO Corporation, then answer the discussion questions that follow
the Key Takeaways section below.
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Chapter 23 Cases in Holistic Risk Management
KEY TAKEAWAYS
In this section you studied integrated risk management and finite risk
management programs, two types of alternative risk-financing
arrangements:
In a finite risk program, the insured pays for its own losses
through premiums placed in an experience fund held by an
insurer
23.3 Case 3: Nontraditional Insurance Programs and Application to the Hypothetical Loco Corporation 1135
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23.3 Case 3: Nontraditional Insurance Programs and Application to the Hypothetical Loco Corporation 1136
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DISCUSSION QUESTIONS
23.3 Case 3: Nontraditional Insurance Programs and Application to the Hypothetical Loco Corporation 1137
Chapter 23 Cases in Holistic Risk Management
1. Refer to Table 23.3 "Auto Insurance Plan Options". Other than the fact
that the policies are provided by different companies, what could
account for the significant differences among premiums presented in
the table?
2. What is the purpose of the waiting period in LTD insurance? How does
the Smith family make certain there are no gaps in coverage in the
event of disability?
3. Examine the insurance premiums allocation shown in Figure 23.3
"Monthly Cost Allocation". Why do you think auto insurance has the
highest insurance allocation and life insurance the lowest?
4. Do you agree with the Smith familys assessment of its insurance
needs? Are there other relevant facts about the family that should be
factored into the decision?
5. How might accelerated benefits in a life insurance policy be triggered?
What does this provide?
6. Which of the hypothetical Galaxy Max, Inc., health plans do you
personally find preferable? Explain your reasoning.
7. In what way does use of a flexible spending account and premium
conversion plan reduce health care costs to employees?
8. How can employees continue to have life and health insurance
coverage without providing new evidence of insurability in the event
of termination from a group plan?
9. What should employees consider when selecting among 401(k)
investment options?
10. What employee benefits of the hypothetical Galaxy Max, Inc., are
unrealistic and impossible to find in todays world?
11. How does a reinstatement provision provide an additional layer of
protection in an integrated risk program?
12. What are the potential disadvantages of a finite risk program?
13. Explain how to determine which types of coverage to include in a
multiyear integrated risk program and the appropriate limits to select.
14. It is said that traditionally uninsurable risks are insurable under finite
risk programs. Explain why this is possible.
15. Refer to the information in Part I of the LOCO Corporation hypothetical
case study and respond to the following:
1138
Chapter 23 Cases in Holistic Risk Management
Banham, Russ. When Insurance Really Is a Total Risk Package. Global Finance,
February 1997, 1112.
Helbting, Carolyn P., Georg Fallegger, and Donna Hill. Rethinking Risk Financing.
Zurich, Switzerland: Swiss Reinsurance Company, 1996.
Koral, Edward S. A Tug of War Accounting Rules and Finite Risk Programs. Risk
Management, November 1995, 4547.
Lenckus, Dave. Concentric Risk Programs Means Big Saving: Innovative Programs
to Save FMR Time, Money. Business Insurance, April 14, 1997, 98.
Lenckus, Dave. FMR Corp. Business Insurance, April 14, 1997, 98.
Lenckus, Dave. Reinsurance Program Strives to Find the Right Blend of Risks.
Business Insurance, April 14, 1997, 100.
May, David G. The Real Thing. Financial Executive 13, no. 3 (1997): 42.
1140
Chapter 23 Cases in Holistic Risk Management
Mello, John P. Jr., Paradise, or Pipe Dream? CFO: The Magazine for Chief Financial
Officers 13, no. 2 (1997): 7375.
Nottingham, Lucy. Integrated Risk Management. Canadian Business Review 23, no. 2
(1996): 2628.
Teach, Edward. Microsofts Universe of Risk. CFO: The Magazine for Chief Financial
Officers, March 1997, 6872.