Legal Alert: IRS Provides Guidance on FSA Relief Authorized in the Consolidated Appropriations Act, Grants Other Cafeteria Plan Relief

IRS Provides Guidance on FSA Relief Authorized in the Consolidated Appropriations Act, Grants Other Cafeteria Plan Relief

We are just weeks shy of the one-year anniversary of the President’s declaration of the COVID-19 National Emergency, and the COVID-19 National and Public Health Emergencies are still in effect.  As a result of the long-term impact of the pandemic, many employees faced forfeiting their unused health FSA and dependent care assistance program (DCAP) funds at the end of the 2020 plan year.COVID-19 law

As a result, and as we previously reported, a second stimulus relief bill (the Consolidated Appropriated Act, 2021) was signed into law on December 27, 2020, which provided much-needed relief for health FSAs and DCAPs.  On February 18, 2021, the IRS released Notice 2021-15, which provides additional guidance related to the relief in the stimulus bill as well as further relief for cafeteria plans and HRAs.  The guidance and relief are summarized in more detail below.

IRS Guidance Related to the Second Stimulus Bill (CAA, 2021)

Health FSA and DCAP Carryovers – The stimulus bill authorized employers offering a DCAP or health FSA to allow participants to carry over all unused DCAP and health FSA contributions or benefits remaining at the end of the 2020 plan year to the 2021 plan year.  Notice 2021-15 clarifies that:

  • Employers may require employees to make an election in the 2021 or 2022 plan year to access the carryover from the previous plan year.
  • The carryover relief applies to all health FSAs, including limited purpose health FSAs.
  • If an employee uses the mid-year election change relief discussed elsewhere in this alert to prospectively elect to participate in the health FSA mid-year, the employee can access the full amount of their carryover from 2020 retroactive to January 1, 2021.
  • Employers can restrict the amount employees can carryover, i.e., they do not have to allow the full unused amount from 2020 or 2021. Employers need to specify the limit to employees in the plan amendment and any communications to employees.
  • Employers may allow employees to opt out of the carryover to preserve HSA eligibility.
  • The amount carried over may be from multiple plan years, i.e., if an employee has a remaining balance at the end of the 2020 plan year and it is still remaining after the end of the 2021 plan year, it will be accessible during the 2022 plan year (as a carryover) if the employer adopts the carryover relief for the 2021 plan year.

Extended Grace Period – Employers offering a DCAP or health FSA may extend the grace period for using any benefits or contributions remaining at the end of a plan year ending in 2020 or 2021 to 12 months after the end of the applicable plan year.  The Notice clarifies that:

  • The extended grace period is available for up to 12 months, meaning employers may elect a shorter period of time.
  • The relief applies to both general purpose and limited purpose health FSAs.
  • For purposes of HSA eligibility, employers can permit employees to opt out of the extended grace period.

 

Spend Down – Similar to DCAPs, employers offering a health FSA may allow participants who cease participation during the 2020 or 2021 plan year to continue to be reimbursed from any unused benefits through the end of the plan year (and applicable grace period) in which participation ceased.  In Notice 2021-15, the IRS clarified the following:

  • Employers do not have to allow employees who terminate mid-year to spend down for the remainder of the plan year.  Instead, they can adopt a shorter period of time.
  • The spend-down can be used for anyone who terminates employment, loses eligibility for the plan due to a reduction in hours, or loses eligibility because they made a new election during calendar year 2020 or 2021.
  • Even if the employer adopts the spend-down relief, it must still offer COBRA for individuals with an underspent health FSA account.  The COBRA premium established by the employer cannot include the amount carried over or available due to the extended grace period relief.

 

DCAP Reimbursement for Children Who Turned 13 During the Pandemic – Employers offering DCPAs in plan years with open enrollments that ended on or before January 31, 2020 may choose to reimburse employees for dependent care expenses for children who turned 13 during the pandemic. The relief applies for the subsequent plan year (e.g., calendar year 2021 plans) to the extent the employee has a balance at the end of the 2020 plan year after any relief adopted by the employer.  The IRS clarified that:

  • The employer may adopt this relief without also adopting the extended grace period or carryover.

Health FSA and DCAP Election Changes – Employers offering a health FSA or DCAP may allow employees to make prospective election changes (subject to annual limitations) to their 2021 contributions without experiencing a change in status event. The IRS clarified the following:

  • Employers may allow employees to make the following changes on a prospective basis:
    • Revoke an election
    • Make one or more elections; or
    • Increase or decrease an existing election

If an employee elects to revoke DCAP or health FSA expenses, the employer may not refund any contributions to employees.  The employer may choose to treat the contributions made before the elections are revoked the following ways:

  • The contributions may remain available to reimburse medical or dependent care expenses incurred for the rest of the plan year;
  • The contributions are only available to reimburse expenses incurred before the revocation takes effect (and not later incurred expenses); or
  • The contributions are forfeited.

If the employer takes the second or third approaches listed above, then the health FSA is no longer treated as HSA-disqualifying coverage.  Therefore, an impacted employee could begin participating in an HSA as soon as health FSA participation is terminated.

Other FSA Clarifications

The IRS further clarified that employers may adopt an extended grace period or carryover, but not both.  Employers can adopt some, all, or none of the FSA relief provided under the stimulus bill.  The relief is also available to employers who previously did not offer a carryover or grace period – they can adopt them for the 2020 and 2021 plan years so employees may benefit from the relief.

Further, the employer can adopt relief for some, but not all health FSA or DCAP participants, subject to nondiscrimination rules; however, any amount carried over or the extended grace period will not be taken into account for purposes of nondiscrimination testing.

Additionally, the IRS clarified that, for purposes of the relief, employers may amend the plan to allow employees to make a mid-year election to be covered by a general purpose health FSA for part of the year and a limited purpose health FSA for the remainder of the year. If the employee does so, then any permissible HSA contribution is based on the number of months the employee was covered under the limited purpose health FSA.  Further, unused amounts in the limited purpose health FSA can be transferred to the general purpose health FSA or vice versa; however, the general purpose or limited purpose health FSA can only reimburse applicable (based on the type of health FSA), allowable expenses incurred after the change in coverage, respectively. If, under the relief, an employee makes a mid-year election change from an HDHP to a non-HDHP mid-year and elects to participate in a health FSA, then the health FSA must be operated as a limited purpose health FSA for the months the employee was otherwise HSA-eligible, and then may operate as a general purpose health FSA for the remaining months (when the employee was not enrolled in HDHP coverage).

Finally, the IRS clarified that in no instance can an employee receive a refund of any unused FSA contributions in cash or in another form of taxable or non-taxable benefits.

Unfortunately, the IRS failed to clarify with any certainty whether an employee may be taxed on any DCAP reimbursements in excess of $5,000 for the calendar year.  While the relief provides that the annual limits under Section 129(a) of the Code apply to amounts contributed to the DCAP for the plan year, not the amounts reimbursed or available for reimbursement, if the employer adopts the extended grace period or carryover, this does not directly answer the question.  The guidance does, however, clarify that the W-2, Box 10 amount for the DCAP does not need to be adjusted to take into account the amount available in the extended grace period or carryover.  We also note that the American Rescue Plan Act of 2021, a bill to enact President Biden’s COVID-19 relief package, includes a provision that, if passed, would increase the DCAP exclusion from $5,000 to $10,500 (from $2,500 to $5,250 in the case of a separate return filed by a married individual) for 2021.

Additional IRS Relief

Notice 2021-15 also includes additional relief for cafeteria plans and HRAs.

Election Changes for Health Coverage – Similar to the IRS’ initial COVID-19 relief issued last year in Notice 2020-29, Notice 2021-15 allows employers to amend their cafeteria plan to allow employees to make mid-year election changes with respect to employer-sponsored health coverage. Specifically, employers may allow employees to do the following on a prospective basis:

    • Make a new election if the employee initially declined coverage;
    • Revoke an existing election and make a new election to enroll in different health coverage sponsored by the employer; or
    • Revoke an existing election on a prospective basis, provided that the employee attests in writing that the employee is enrolled, or immediately will enroll, in other health coverage not sponsored by the employer.

As was the case in 2020, the employer can adopt all, some, or none of this relief.  Employers can limit the number of election changes permitted and/or designate a time period during which such changes can be made, and the employer may limit the ability of employees to change from one type of health plan to another. Finally, the employee may not revoke an existing election for comprehensive health coverage by attesting to enrollment in a limited purpose dental and/or vision plan.

 

HRAs and FSAs

Pursuant to the CARES Act, employers were permitted to amend their plans to allow HRAs, health FSAs to reimburse expenses incurred for over-the-counter drugs without a prescription, as well as menstrual care products effective January 1, 2020. These expenses can also be reimbursed under HSAs and Archer MSAs.  In the Notice, the IRS permits employers to amend their cafeteria plans (for purposes of the health FSA) and HRAs to reimburse these expenses effective January 1, 2020.

What Does This Mean For Employers

Pursuant to Notice 2021-15, employers must amend their plan to adopt any of these changes no later than the last day of the first calendar year beginning after the end of the plan year in which the amendment is effective.  In other words, employers must amend a calendar year 2020 plan by December 31, 2021, and a calendar year 2021 plan by December 31, 2022.  In the meantime, the employer must communicate these changes to employees and must operate the plan in accordance with the changes between the time the amendment is effective and when it is ultimately adopted by the employer.  Employers should effectively communicate the changes to employees and ensure they operate in accordance with those communicated changes, including any limits they intend to impose.


About the Author.  This alert was prepared for Alera Group by Marathas Barrow Weatherhead Lent LLP, a national law firm with recognized experts on ERISA-governed and non-ERISA-governed retirement and welfare plans, executive compensation and employment law.  Contact Stacy Barrow or Nicole Quinn-Gato at sbarrow@marbarlaw.com or nquinngato@marbarlaw.com.

The information provided in this alert is not, is not intended to be, and shall not be construed to be, either the provision of legal advice or an offer to provide legal services, nor does it necessarily reflect the opinions of the agency, our lawyers or our clients.  This is not legal advice.  No client-lawyer relationship between you and our lawyers is or may be created by your use of this information.  Rather, the content is intended as a general overview of the subject matter covered.  This agency and Marathas Barrow Weatherhead Lent LLP are not obligated to provide updates on the information presented herein.  Those reading this alert are encouraged to seek direct counsel on legal questions.

© 2021 Marathas Barrow Weatherhead Lent LLP.  All Rights Reserved.

Caring for Caregivers

Employees bring their whole selves to work each day which allows for the highly efficient, effective, and creative workforce we enjoy.  As Human Resource professionals we appreciatecaregiver benefits the diversity of our workforce and continue to adjust within our employee benefit programs to meet the changing needs of our employees and their families.  Top employers know that thinking more strategically about caregiving will help them fight for top talent and provide the corporate culture employees are seeking especially in this more complicated caregiving landscape brought on by COVID-19.

The concept of caregiving is not new but as our workforce evolves it is becoming more critical to consider caregiving as an area of opportunity within employee benefits.  This shift, further amplified by the pandemic, highlights a cavern between top tier employers who appreciate the multitude of responsibilities employees must navigate versus those that hire people despite them.

The Rosalynn Carter Institute for Caregiving recently released Caregivers in Crisis:  Caregiving in the Time of COVID-19.  This thoughtful piece attaches hard data to the burden we have all experienced over the last 6 weeks.  The data indicates that 83% of caregivers have increased stress since the start of the pandemic, and 42% have indicated that the number of other caregivers available to help them has declined.  Caregivers themselves – in addition to those requiring care – are experiencing an increased burden from isolation, stress, financial concerns, and general instability.

Defining Caregivers

AARP estimates that each year approximately 40 million American adults provide support to others with basic functions (i.e. activities of daily living).  Many of those, including 75% of millennial caregivers are working.

For millennials in particular the stress of caregiving can be more challenging since they are typically providing care for more hours in a week, making less money and having less support from other family members (i.e. reduced family size).  Also of note, millennials are the most diverse caregiving community to date (i.e. racially, ethnically and more likely to identify as LGBTQ+) which can be important to consider related to diversity and inclusion.

Employers that are new to the concept can consider caregiving solutions as a continuum or suite of solutions; not a one size fits all approach or something that has to be implemented all at one time.  A core offering typically includes:

  • Educational resources
  • Advocacy support
  • Self-service tools

Enhancements allow for 24/7 live support and paid time off when necessary to address caregiving emergencies.

It is important to think broadly about caregiving solutions.  In addition to introducing separate solutions, it is equally important to shift our mindset and expand common employer benefits that could be leveraged for extended family members (i.e. second opinions, medical guidance with challenging health diagnoses, etc.).  The term caregiving must also extend beyond elder care of medical conditions but include children struggling with online school or developmental disabilities or Medicare eligibility and financial planning when moving into retirement.  The goal of caregiving solutions is to support your employees as both caregivers and those needing care.

We have all heard the announcement on the airplane about putting on your own mask before helping others; employer sponsored caregiving is building on that logic and allowing your employees to more efficiently:

  • Find educational information related to their caregiving needs
  • Direct employees toward potential solutions
  • Provide tools to support decision making
  • Pair employees with short term and long-term caregiving solutions

Caregiving support as an employee benefit is still in its infancy.  Unfortunately, many employers do not realize the need, the impact on employee performance and the demand that exists at the employee level.  A 2019 Harvard Business School Study, The Caring Company, indicates that while only 24% of employers surveyed believed employee caregiving influenced their employees’ performance at work, 80% of employees surveyed admitted that caregiving had an effect on their productivity.  In addition, 32% of employees surveyed indicated that they left a job because of their caregiving responsibilities.

Employers who take a proactive position on caregiving support – along with the tools needed for successful roll out and measurement – will see a direct impact on attraction, retention, productivity, and corporate morale.

 

If your organization is interested in exploring caregiving support as an employee benefit, or is ready to identify partners for a best practice roll out, please reach out to our team.

Spring’s Senior Consulting Actuary Named Break Out Award Winner

We are thrilled to announce that our Senior Consulting Actuary, Peter Johnson, FCAS, MAAA has been named a 2019 Break Out Award Winner by Business Insurance. Peter leads our property & casualty team and works on a range of client projects as well as regulatory initiatives. He has almost 15 years of experience in reserving, pricing, alternative risk transfer and reinsurance risk transfer work.

Consulting Actuary

Peter is responsible for product and service development of P&C actuarial services for both large and small captive insurance companies, self-insured entities, and traditional insurance companies. These services include:

  • issuing statements of actuarial opinions
  • annual (or more frequent) reserve reviews
  • captive application reviews
  • captive feasibility studies
  • pricing/funding studies
  • retention analyses
  • financial statement projections
  • risk transfer testing analyses

Peter was born and raised in Wisconsin.  He is a fellow of the Casualty Actuarial Society and a member of the American Academy of Actuaries. You can learn more about him here.

We have been happy to have him on our team for about two years now and are so proud of this well-deserved recognition!

 

Continued Pressure from the IRS on Bad Fact Patterns – How to Avoid Trouble

The Courts recently made a decision regarding the Reserve case for the IRS. This is the second case of late that has been decided against a captive owner in an effort to crack down on captives the IRS perceives to have a poor fact pattern, and therefore cannot meet insurance tax treatment standards. For example, captives that have been set up to undertake sham transactions or undertaking transactions that do not meet the bona fide insurance company characteristics would fall into this category.

According to the Avarhami v. Commissioner (“Avrahami”) judgement, the court provided four criteria that result in an arrangement constituting insurance.  These four criteria were also addressed in the Reserve Mechanical Corp (“Reserve”) v. Commissioner case, and are as follows:

  • The arrangement must involve insurable risk
  • The arrangement must shift the risk of loss to the insurer
  • The insurer must distribute the risk among its policy holdersIRS captives
  • The arrangement is insurance in the commonly accepted sense

Reserve outlined these four non-exclusive criteria to establish a framework for determining the existence of insurance for federal income tax purposes.  The court’s opinion focused on the idea of risk distribution, which led to investigating PoolRe Insurance Corp. (“PoolRe”), the stop loss insurer for Reserve. The judgement discusses the transaction in detail and stated there was a circularity of funds that invalidated the pooling arrangement.

To determine if a captive insurer has met the risk distribution criteria as a standalone captive without stop-loss or reinsurance protection, the courts looked at the total number of insureds and the total number of independent risk exposures. It has long been believed that the “law of large numbers” allows an insurer to minimize its total risk and reduce the likelihood of a single claim exceeding the premium received. In the Avrahami and Rent-A-Center court cases, risk distribution passing and failing thresholds have been observed as follows:

  • Rent-A-Center ultimately showed distribution of its risk by insuring the risk for 14,000 employees (workers’ compensation), 7,100 vehicles (auto coverage), and 2,600 stores (general liability coverage) in 50 states
  • Avrahami didn’t show distribution of risk by insuring 3 jewelry stores, 2 key employees, and 35 total employees. Further, one of the stores had 5 low frequency coverages and the other 2 stores had 2 low frequency coverages

Reserve, an Anguilla-domiciled captive, wrote 11 to 13 policies over the three tax years in question and had direct policies for 3 insureds.  Peak Mechanical & Components, Inc. (“Peak”), an S Corp for Federal income tax purposes, was owned in equal 50% shares by two individuals and was the primary insured under all policies. The policies were also issued to two other subsidiaries, although the operations were not significant. Peak operated two facilities and had a max of 17 employees. Reserve did not meet risk distribution based on this exposure profile alone; its exposures were similar in scale to the Avrahami’s.  Reserve contended that it still met the risk distribution safe harbor requirements, by having 30% of its gross premium for each of the tax years for unrelated parties via the reinsurance agreement with PoolRe.  A similar argument was made in the Avrahami case with their reinsurance pool.

Before it is determined whether Reserve distributed risk through the agreement with PoolRe, they evaluated whether PoolRe was a bona fide insurance company. In the eyes of the court, a captive should be able to answer “yes” to each of these questions and provide adequate support to:

  1. Is there no circularity to the flow of funds?
  2. Are the policies developed in an arm’s length approach?
  3. Did the captive charge actuarially-determined premiums?
  4. Does the captive face actual exposures and insurance versus business risk?
  5. Is the captive subject to regulatory control, and did it meet minimum statutory requirements?
  6. Was the captive created for non-tax business reason?
  7. Was a comparable coverage in the market place more expensive, or even available?
  8. Was it adequately capitalized?
  9. Were claims paid from a separately maintained account?

The court’s conclusion in Reserve’s case provided details of the concerns with evidence in support of the first six questions listed above, and concluded that the PoolRe quota share arrangement provided the appearance of risk distribution without actual risk distribution.  The court summary also highlighted the following:

  • Circularity of funds was exhibited with PoolRe receiving and distributing the same amount of money to Reserve
  • There was no evidence that the premium payments to PoolRe by Reserve and the other participants were determined by actuaries
  • Contracts were not determined in a like manner, nor using objective criteria

One of the major concerns the IRS addresses with the Avrahami and Reserve cases is that a one-size-fits-all rate for all participants in the pool/reinsurance agreement isn’t valid.  The court also addressed an alternative ground for the case, which would have been to evaluate “Insurance in the Commonly Accepted Sense”. To determine if an insurance arrangement exists, the following factors come into play:

  • Was the insurance company organized, operated and regulated as an insurance company?
  • Was it was adequately capitalized?
  • Were the policies valid and binding?Captive Checklist
  • Were the premiums reasonable and a result of an arm’s-length transaction?

The court summary pointed out several issues in Reserve’s support for answering the above questions, such as:

  • Reserve had no employees of its own performing services and the board members did not know how claims were made or handled.
  • There’s no evidence that activities were performed in its domicile.
  • Claims must have supporting documentation, yet there was no addendum for the program until after the policy date. An employee from the insured signed the checks as opposed to the insurer.
  • Binding and valid policies – policies must, at a minimum, identify the insured.
  • There were peak paid commercial market premiums of $95,828 in 2007 versus $412,089 to Reserve in 2008. This is a 330% increase in insurance premiums. In addition, Peaks premiums vary from year to year with no explanation.
    • Note, the Avrahamis similarly had significant increases in premium spend, with almost an 800% increase over a several year period.

These cases provide us and other captive professionals with guidance and clarity. As the industry grows, cases like these will form the cornerstones of how to properly operate and conduct business as a captive insurance company.

Key Takeaways

The IRS clearly has problems with some of the pooling structures used to qualify captives as meeting the risk distribution safe harbor tests. They are concerned that the premiums ceded to the pool and the transfer of risk into the insurance pool are not commensurate with one another, and that the pools are only being utilized to circle premiums to the captive participants, with each assuming no or minimal losses from the pool.

There should be clear documentation of premium determination by an actuary, illustrating why premiums are reasonable and that sufficient risk transfer exists.  Over time, if the total loss experience and premium ceded to the pool doesn’t produce a long-term average loss ratio consistent with the commercial marker, then the pool’s support in having arm’s-length contracts with each of the participants becomes weak and difficult to defend.  Long term average commercial market loss and loss adjustment expense (“LAE”) ratios for most lines of business generally fall in the range of 50% to 75%, hence the 70% loss and LAE ratio threshold in IRS Notice 2016-66 used to identify captive transactions of interest.

Finally, it is important to show sufficient support in a captive’s business plan, policies, and feasibility studies to address the questions above about an insurer/pool being a bona fide insurance company.

Don’t Risk Missing These 3 Hot Topics from RIMS

RIMS 2018Each year, the Risk Management Society (RIMS) hosts one of the largest industry events. The annual conference and tradeshow brings together thousands of insurance and risk experts, and for the 11th year in a row, the Spring team was among them. We were happy to take a break from Boston’s not-so-springy weather and head to San Antonio for RIMS 2018.

Over the course of the 3-4 days, I was able to a) meet and greet insurance colleagues, both new and familiar, b) party like a true Texan (in case you thought Risk Managers would make for a dull crowd – you may want to rethink this notion), and c) get a gauge on the most popular industry trends and concerns.

For this writeup, I’m focusing on point C, because between various networking and social events, there was a lot to learn at the RIMS annual conference, and I’d love to share some takeaways. Here are the most buzz-worthy topics, in my opinion.

  1. Cyber & Tech

As it has with conferences and news headlines over the past 5-10 years, technology took center stage at RIMS. However, I’m using “technology” as an umbrella term to represent a range of digitally-centric, Internet of Things (IoT) subjects, such as:

a) Cyber

During Berkshire Hathaway, Inc.’s annual shareholders meeting, Warren Buffett Chairman, President and CEO said, “Insurance is very early in the game in determining how to cover the risk of data breaches, ransomware anCyber RIsk Mitigationd other hacking perils”. He then went on to say that the risk itself is a “very material risk” that didn’t exist 15 years ago one that will get worse. The world of cyber threats and attacks continues to keep risk professionals up at night. From my actuarial perspective, the probability and severity of cyber loss events are becoming better understood, although there still is tremendous uncertainty due to the rapidly changing nature of the risk. The following Cyber sessions were presented at RIMS:

  • In “Are You Prepared for a Cyber Extortion Event?”, audiences were walked through different ransomware threats and a checklist for getting through such an attack.
  • Jason Trahan went into further detail in explaining the “Anatomy of a Cyber Event Claim”, which provided a preparation process for cyber claims as well as an extensive list of possible claims expenses.
  • A representative from Willis Towers Watson highlighted the importance of corporate culture when it comes to combating cyber risk.
  • A woman from The Washington Post Risk Management team led a discussion on the different insurance policies that intersect when it comes to cyber risk, and how to manage these overlaps.
  • Jeffrey Sharer of EY revealed some startling statistics such as: “89% say their cybersecurity function does not fully meet their organization’s needs”.
  • Joon Sung and Kevin Kalinich stressed the importance of recognizing and addressing your third party/vendor cyber exposures, nothing that cyber resilience is not just an internal matter.
  • During “Pay Up or Else: Ransomware Risks”, John Coletti and Anna Ziegler explained the latest trends and scams in the ransomware sphere and offered advice on how to be both proactive and reactive.
  • One session focused on communicating a cyber attack to your C-suite, board of directors, and/or other superiors. Ten best practices were shared, such as: “Have a customer notification plan and procedures in place.”

b) Autonomous Vehicles

In March, a self-driving Uber car killed a pedestrian in Arizona, and an autonomous Tesla vehicle caused another death in California. These two incidents are just a couple of many news headlines involving self-driving cars, which certainly pose a variety of risks. As such, they were discussed on several occasions at this year’s conference.

  • In a session entitled, “Driving Insurance Forward”, Katherine J. Henry provided an overview of how autonomous vehicles are covered, the consequences they can bring and ways to confront this emerging risk.
  • Representatives from Liberty Mutual and Ford Motor Company teamed up to explain the different industries that will be affected by the rise in self-driving cars, from oil to advertising companies. Their presentation spoke to the broader trend of disruption in the automotive industry, pointing out 4 facets to consider: autonomous driving, electrification, connectivity, shared mobility/economy.

c) Social Media & Mobile Apps

Considering the recent Facebook privacy scandal, it was important to look at social media and mobile issues from the perspective of risk management and mitigation.

social media risk

  • Gregory Bangs of XL Catlin spoke to the topic of “Social Engineering”, which can incorporate a range of scams such as vendor impersonation and malware. He explained what these fraudulent activities can look like and their implications for insurance coverage and employee preparedness.
  • In “Swipe Right on Insurance”, Cort T. Malone and Stephanie Hyde discussed the risks and insurance options related to social media platforms and mobile apps, as used by employees. They covered things like harassment, privacy, reputation, business torts, intellectual property and the regulatory environment.

d) Wearables

  • Thomas Ryan highlighted the opportunity a “wearable” device poses from a workers’ compensation coverage standpoint and guided the audience on selecting a wearable vendor for corporate use.
  • Two experts from Modjoul Inc. and Cotton Holdings Inc. explained wearables in detail – why use them, how to use them, how they work with insurance carriers, etc. Through a case study, they also endorsed wearables as an option to keep employees safe and productive.

e) Drones & Other Tech Matters

  • Chris Proudlove of Global Aerospace and Vincent Monastersky of Fox Entertainment Group presented the challenges and opportunities associated with the widespread growth of drone use, both commercially and personally. It turns out, over 75% of drone-related claims were caused by operator error. Further, they outlined coverage types and options.
  • A session on emerging technologies, including smart sensors, wearables, drones and artificial intelligence gave audiences a broad but detailed landscape of how all of this connectivity affects the “risk ecosystem”, and tips on drones business riskhow to prepare for the future.
  • Another discussion, led by Tim Yeates, covered the “Fourth Industrial Revolution” and the benefits and risks of the level of information being shared today. Thought-provoking questions like, “Who do we trust – human intelligence or artificial intelligence?” were posed.
  1. Natural Disasters

In 2017, the U.S. was hit hard with Hurricanes Maria, Harvey and Irma as well as wildfires in California. Outside the U.S., the Caribbean was crushed with those same hurricanes, a devastating earthquake hit Mexico, extreme flooding impacted areas like Bangladesh and Sierra Leone, and areas of China suffered from landslides and typhoons. Unfortunately, this is not an exhaustive list.

As risk professionals we need to look at these occurrences from a different lens, so it was no surprise that the word “catastrophe” was rampant at the RIMS 2018 conference.Catastrophic Loss

  • Stephen Moss explained the anatomy of a catastrophe risk model and pointed out the large protection gap, noting that about 50% of the losses incurred from 2017’s most impactful natural disasters were uninsured.
  • An attorney from McCarter & English, LLP focused on business interruption losses resulting from catastrophic loss, discussing pitfalls that could cause your claims to be undermined as well as best practices for getting coverage.
  • Robert Nusslein of Swiss Re explained parametric natural catastrophe insurance for hurricanes and earthquakes, how it differs from traditional insurance and how it can help fill in gaps.
  • In “The Future of Climate Risk Management”, audiences learned about their company’s climate risks – the size, scale, complexity and reach. Then, the speaker introduced solutions and tools for such risks.
  • James Pierce spoke on “Mother Nature’s Onslaught” and speculated on whether a new norm is needed in combatting natural disasters.
  • One session, “The Sky Fell”, went into further detail on catastrophic claims: common claim mistakes, communication issues between layers of insurance, crisis management tactics, TPA management and more.
  • The CEO and Founder of Orbital Insight, a geospatial analytics company, outlined how technologies like satellite and drone imagery as well as AI and cloud computing can provide insight into catastrophic risk assessments. He even showed audiences imagery showing flood detection for Hurricane Harvey, as one of several illustrations.
  1. Compliance

Compliance is always a key concern in this industry. What changes year to year are the specific areas of compliance focus, some of which are below.

  • Lisa Kerr and Bruce Wineman led a session on multinational program compliance – highlighting regulations, tax law, offshoring and variability as things to look out for.
  • A different presentation focused on Medicare and Medicaid compliance, going over the boatload of associated acronyms, lien compliance, reporting and what to look for in a partner.
  • In “Risk Management, Compliance and Preparedness”, attendees received an overview of SRM and ERM, examples of strategic risk, automation advice and more.

 

If you were able to make it to the RIMS conference this year, I hope this helps you retain they event’s key takeaways. If you couldn’t make it to San Antonio, well, now it’s almost as if you were there!

Please feel free to reach out with any questions, actuarial or otherwise. In the meantime, put RIMS 2019 on your calendar – April 28th – May 1st – in Boston (our backyard). We’re already excited for it!

World Captive Forum Recap: 5 Hot Topics

The World Captive Forum, sponsored by Business Insurance, held its 27th annual conference earlier this month in Fort Lauderdale, Florida. From captive owners, reinsurers, brokers, regulators and more, the event brought together about 300 of industry thought leaders, and we were happy to have taken part (and not just because we got to temporarily escape winter in Boston).

It’s been a few weeks now and we’ve had time to reflect on the topics and issues that really stuck with us after leaving the conference. As always, we wanted to share our vieGlobal Captive Marketwpoint. So if your schedule didn’t allow you to attend the World Captive Forum, or you’re just a little fuzzy on the details several weeks later, we’ve got you covered! Stay in the loop with our event highlights below.

1. International Regulations & Markets

Being the World Captive Forum, it makes sense that there was a significant focus on captive happenings outside of the US. A panel including employees of Willis Towers Watson and the State of Delaware commented on Brexit,, BEPS, IAIS, US tax reform and other issues related to international regulations that are important for the captive market. Later, we heard an update on the Latin American captive market from regional thought leaders. Among other lessons, we learned that Mexico and Colombia have the leading captive markets, while Peru, Argentina and Brazil have various obstacles hindering their captive development and growth.

2. Captives & Benefits

Captives can be a powerful, advantageous funding mechanism for an organization’s employee benefits. But as the world of benefits continues to change and evolve, so too has that structure. Bill Fitzpatrick and Mark Cook provided updates on global (there’s that word again) employee benefits and captives best practices. They outlined some of the different considerations for benefits and captives in different countries. Marsh then led a session on using voluntary benefits to grow your captive. They highlighted the advantages (or benefits, you could say) of voluntary benefits, different products available, factors involving ERISA and other pertinent issues.

3. Medical Stop-Loss

Mark Weinstein of Independent Colleges and Universities Benefits Association (ICUBA) led a discussion around the adding of medical risk to a captive, and all that entails. His panel explored different medical risk structures as well as the significance of risk diversification. In a separate roundtable, representatives from companies like Coca-Cola and Kirkway International covered medical stop-loss captives – their advantages and factors to consider.medical stop-loss

4. Microcaptives & Cells

In light of last year’s Avrahami vs. Commissioner court case ruling, it’s no surprise that microcaptives have been grabbing more of the industry’s attention. Specifically, one panel including Jeremy Huish and Mary Ann McMahon focused on pooling in microcaptives: how it works, best practices, IRS considerations, a look at how pooling relates to Avrahmi and more. The presentation included a case study highlighting The Spinx Company. Later, David Provost of the Vermont Department of Insurance presented with colleagues on the innovative ways to utilize a cell company. The session highlighted benefits like stop-loss protection , outlined the various possible structures and demonstrated it all through a look at an actual client’s experience. Further, a roundtable discussion delved further into the topic of microcaptives and cells.

5. Captive Optimization

A captive is a worthwhile endeavor, but it is a large one. As such, it’s important to make sure you’re getting the most out of it and continually checking for new opportunities that may have arisen due to market or regulatory changes. This theme appeared in a few different sessions at World Captive Forum. In one, “Spicing Up Your Captive”, introduced pensions, cyber, intellectual property, climate risks, reputation and others as food for thought when it comes to new captive strategies.

In another session, our very own Karin Landry, along with Michael Lubben of Henry Crown and Company/CCI, highlighted the importance of undergoing captive refeasibility studies on a regular basis, to ensure there are no missed opportunities and that your captive is keeping up with the changing needs of your organization. The presentation also included a case study. The topic got even more stage time when it was discussed in a roundtable – “Doing More With Your Captive.”

Captive Optimization

 

We hope this recap helped you glean all of the most prevalent and highly discussed issues of the 2018 World Captive Forum, whether you were able to attend or not. As you can see, we weren’t just in it for the weather! We enjoy having the opportunity to look back at each event we go to and sharing our takeaways with like-minded professionals. Keep an eye out for a similar synopsis after the CICA Annual Conference next month!

 

 

Spring Speaking at World Captive Forum

World Captive Forum 2018The Spring team will be happy to escape the cold Boston winter at the end of January and head down to Fort Lauderdale, Florida for Business Insurance’s World Captive Forum. The conference, which will run from January 31st through February 2nd, will be a gathering spot for hundreds of professionals in the captive insurance and risk management industries. Spring has been involved with the World Captive Forum on several prior occasions, and is excited to be both a sponsor of and a speaker at this year’s event.

Karin Landry, Spring’s Managing Partner, will be presenting, “Time For a Captive Refresh?” on Thursday, February 1st from 1-2 PM. If you’re interested in learning how to ensure your captive remains optimized throughout the regulatory and marketplace shifts that happen regularly, you should listen in to Karin’s session. Further, the Spring team will have a home base at booth #13, so feel free to come chat with us.

Spring to Exhibit at Yankee Dental Congress

For the 8th year in a row, Spring is pleased to participate in the annual Yankee Dental Congress annual event that runs from January 24th – 28th in Boston’s Seaport area.

Yankee Dental Congress Boston

Our brokerage arm, Spring Insurance Group, has been helping small businesses, including a large number of Massachusetts Dental Society (MDS) members, to obtain and manage affordable, robust health plans for their employees. Each year, the team looks forward to connecting with new people and meeting existing clients at the event, which brings in about 27,000 industry professionals.

Spring is excited to be exhibit at the Yankee Dental Congress once again this year, as it is a core way for our brokerage to stay in the loop on industry trends and meet professionals who could use our help. If you’ll be attending Yankee Dental in January at the Boston Convention & Exhibition Center, be sure to stop by our booth and say hi! We’ll be at booth #605.