Managing Business Risk
By: Scott
Richardson, Milo LeBaron & Marc LeBaron
"During a recent meeting with Marc and Milo LeBaron of LeBaron
& Carroll Insurance Agency, we had the opportunity to discuss
the many business risks that our clients face. Some of these
are regulatory in nature, others are financial, and yet others
result from non-planned events, such as accidents, change in market
conditions and the like. The result of that meeting was the
following, in which I interview Marc and Milo LeBaron about how
insurance and insurance agents can help clients minimize risk and
then they turn the tables and interview me about how your attorney
can help minimize risk. "~ Scott J. Richardson
We hope you enjoy the foregoing, and should you have any
questions, comments or follow-up, you may contact us at the
following:
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Scott J. Richardson
Jaburg/Wilk, P.C.
3200 North Central Avenue
Suite 2000
Phoenix, Arizona 85012
Telephone: (602) 248-1012
Email: sjr@jaburgwilk.com
|
Milo LeBaron
Mark LeBaron
LeBaron & Carroll Insurance
1350 E. Southern Avenue
Mesa, Arizona 85204
(480) 834-9315
Email: mlebaron@landc.com
Email: marc@landc.com
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Q & A Subject: Besides Quoting, what can I do to cut
insurance cost?
Scott: Besides selling insurance policies, how can an
insurance agent help its clients minimize risk?
Milo: The Fundamental principle of insurance is the
transfer of risk to the insurance company. This is
important, and also the mechanism that actually pays the insurance
agent to work on your behalf. The challenge businesses face
today is twofold; first, their insurance agent has become nothing
more than a vendor. He or she doesn't earn what they are
paid. The role of the agent has changed over the past number
of years from that of a Trusted Advisor/Consultant to nothing more
than an order taker. Second, almost everything the
traditional agent does is reactionary in nature. If something
needs to get done, it has to be initiated by you or your staff,
using your time, money and energy. In the words of the
insurance agent… If you need something, CALL
ME! And those are 2 BIG problems.
Scott: Recognizing those 2 problems along with numerous
others, what should a business expect from their
agent?
Milo: More! Is what they should
expect. Most business owners are not aware of the amount of
money they pay to their agent. We find they are paying
more to their agent than they pay their CPA or Attorney, yet are
receiving less. Businesses pay 10-15% of the premium to the
agent and should demand more than just the placement of Insurance,
certificates, endorsement and other reactionary services commonly
identified as "Great Service".
As I grew up listening to my grandfather and father talk about
the insurance business and their involvement with their clients,
it's clear that the role of the agent has changed over the past 50
years. I believe the invention of the fax machine played a
great part in the change. From that point forward, the agent
was no longer required to be out and involved with their clients
during the year. Does "Out of sight - out of mind"
ring true?
Scott: Then what should I expect MORE to
be?
Marc: When all is said and done, your agent and his staff should
be proactive and spend time with you to help you; 1. Look more
attractive to the insurance companies, and 2. Help you identify and
control risks that may cost you in the future.
You are not in the insurance business, you pay someone who is,
demand more. Would you be happy if your CPA tells you that if
you had made a small change during the year, you could have saved a
significant amount of money on taxes? Of course not, that is
information you needed during the year. The same problem
occurs in the insurance industry. The traditional agent does
very little to help the business during the year prepare for
renewal. Changes that would help them look more attractive to
the insurance companies and drive down their insurance premium may
be discussed at renewal time, by then, it is too late.
Scott: Can all agents provide the same
services?
Marc and Milo: I guess I would reverse the question and ask you,
aren't all landscaping firms the same? Of course not.
As a matter of fact, you will find that it's not what you do; it's
"how you do it" that makes the difference.
The same applies with the insurance industry. How many
promised services never see the light of day?
Scott: What does a business owner look for when
interviewing agents?
Marc: The phrase comes to mind; "if it looks like a duck,
walks like a duck and quacks like a duck, it's a duck"
You've seen them for years and you know them when they ask to quote
your insurance. The traditional agent promises good service,
cheap price, fast certificates, claims management and other
services that they declare to be "Value Added Service". You
must raise the bar when you choose your agent and demand more:
- Look for Evidence of their promises
- Get their promises in writing
- Do they provide a written plan with goals?
- Look for a stewardship report holding themselves
accountable
Last but definitely not least,
- Does the culture of their business align with your goals and
needs?
Remember, a duck is a duck. If they aren't doing it now,
they are not likely to change.
Q & A Subject: Can your Counsel Help You Minimize
Risk?
Milo: Scott, many people think
they need a lawyer only when they get sued or want to sue someone.
Is this true?
Scott: No, a lawyer should be viewed as a resource to minimize
risks before they occur, not just litigate. Said another way, a
good lawyer should help their clients prevent fires, not just fight
them.
Marc: Give us an example of ways you can help
clients prevent fires/minimize risk?
Scott: One of my favorite examples is to ask a business client
to describe their biggest most important asset. Most
typically I get answers, like my building; my inventory, etc.
However, the real answer is "customers". Without customers
the business does not need the trucks, the inventory or even
employees.
So, protecting this asset (customers) is very important.
One way to do so is to use employment covenants, which are really
contracts between the business and its key employees that attempt
to keep the customers from being taken upon the departure of the
employee by choice or by termination.
Years ago we used primarily covenants not to compete that
attempted to keep employee from leaving and competing with your
business. However the courts have severely restricted these
covenants and look upon them with disfavor making them less useful.
We therefore have developed covenants not to solicit or service you
customers which can be much more effective.
These covenants if properly drafted and correctly presented to
the employee for execution can significantly reduce the risk of
customer loss.
We also assist businesses to send appropriate warning letters to
departed employees to remind them of their obligations.
By the way we also use these covenants to preclude departed
employees from stealing away other employees or sensitive business
information sometimes called trade secrets.
Milo: Can you give us another example
of risk management by a lawyer for a business?
Scott: Sure, one that comes to mind is reviewing a client's
contracts in use to determine if they do what they are supposed to
accomplish. And, we extend this to new contracts, warranties etc.
to be certain they are proper in form and work as expected.
Marc: Is there something that can be done on an ongoing
basis to counsel your business clients?
Scott: Yes many things, but one important feature is to become
involved in the clients area of business. This can come from
activity in trade association activities and even monitoring
proposed legislation that can have significant effect on their
business. We have done this for landscapers, pest control companies
and many others, and have even help draft the laws that govern the
industry.
Having counsel that cares about and understands you industry is
key to minimizing risk.
Milo: Scott, can
you tell us whether regulation and legal penalties are something
that can be managed?
Scott: Of course. Many businesses are governed by state or
federal agencies that have intensive regulation. Keeping abreast of
those regulations and learning how to best follow them by designing
good systems is something a lawyer can do with the help of the
client and others
Another area of concern is Arizona's employer sanction law.
Keeping proper documentation and knowing what is and is not
required can make the difference between compliance or the
suspension or even revocation of state issued licenses.
Marc: Can lawyers, insurance agents and other
professionals collaborate on managing a business client's
risk?
Scott: Yes and often we do so. Bringing various disciplines to
bear on business issues allows the risks to be allayed through
different filters from varying viewpoints. I am surprised more
business clients do not insist on this
approach.
Milo: Finally, with the economic troubles we have
seen lately, should businesses delay efforts to manage risk and put
their available resources elsewhere?
Scott: I cannot make these types of
financial decisions for clients but I can offer that business risk
exists in good times and in bad times. However, in bad times
the effect of a risk becoming realty may be fatal to a business.
Imagine a departed employee without a good employment covenant
leaves and takes a key client. This alone may destroy the
business.
3200 North Central Avenue
. Phoenix . Arizona