Enterprise Risk Management Case Study

The Situation:

Client: The Company has over 25 years of engineering experience in petrochemical and rubber manufacturing. The Company specializes in both off the shelf and custom Thermoplastic Elastomer Products. They have gained world approvals in the automotive, building & construction, wire & cable and medical applications.

Needs: Strategies to reduce cost on their traditional insurance and insure a large trade credit risk. This coverage was not available to them after a large automaker client filed for bankruptcy protection leaving the Company over $1,000,000 in noncollectable invoices.

Planning: Integrate traditional insurance portfolio with a captive insurance company.

Analysis:

Company is a closely held business that has many employees and is working hard to thrive in the turbulent economy. The rising cost of insurance and numerous exclusions had been a source of concern for the owners.

After a review of the existing insurance portfolio and exclusions, RMA was able to create a captive insurance company that allows the employer to fund some of their risks in their captive without exposing themselves to catastrophic risk. By setting up a captive insurance company, the owners have the opportunity to reclaim some or all of the dollars between the premiums funded and the actual claims paid out.

Result:

In addition to capturing carrier underwriting profit, the RMA was able to help drive additional savings for the company while providing increased protection. The Company was able to protect their business with the following primary and difference in conditions policies:

• Business Interruption – Manufacturers and retailers rely heavily on facilities around the globe to supply products, and any disruption in supply or distribution chains may cause significant interruption and loss to a business. Anything less than full capacity operations may result in significant losses. In the event the Company cannot acquire the materials needed to meet its production capacity, or cannot obtain the inventory needed to maintain its sales.
• Property – All Risk – First party insurance that indemnifies the owner or user of property for its loss, or the loss of its income-producing ability, when the loss or damage is caused by a covered peril, such as fire or explosion. The client owns two buildings and thus this coverage is needed.
• Earthquake – The company has real property located in earthquake seismic zones 3 or 4 but lacks earthquake insurance. Since most commercial property policies exclude damage from earthquakes and related perils, they have determined that it is important to insure this risk through the captive.
• General Liability – This coverage will protect the Company against liability claims for bodily injury and property damage arising out of premises, operations, products, and completed operations; and advertising and personal injury liability.
• Intellectual Property – With close to 30 patents globally, this coverage would reimburse the Company for legal expenses incurred to defend them against lawsuits alleging that they have committed patent, trademark or copyright infringement.
• Trade Credit Insurance - This provides coverage against insolvency of a customer, which provides protection against payment default on loan, interest, or scheduled payments. Also known as bad debts insurance. After losing money with a global automobile manufacturer after their bankruptcy, this was and continues to be a big area of concern for the Company as they have a lot of account receivables tied up with many clients.
• Product Liability – Protection against financial loss arising out of the legal liability incurred by an insured because of injury or damage resulting from the use of a covered product or out of the liability incurred by a contractor after a job is completed.
• Product Recall – Insurance coverage for the cost of getting a defective product back under the control of the manufacturer or merchandiser that would be responsible for possible bodily injury or property damage from its continued use or existence. Because of the intricate details of each of their plastic products and the businesses to which they supply their products if a product were discovered to be defective it would be imperative for it to be pulled from the manufacturing floor immediately.