Individual Surety- Fraud Game Over

Individual Sureties have plagued the surety industry over the past decade because many times the assets purported to back the guarantee were not liquid, or worse, fraudulent.   When an individual surety did not fulfill its guarantee, legitimate corporate sureties and their agents reputations were marred.    The defense bill passed by Congress last week contains a provision to reduce fraud on federal projects by requiring assets backing individual surety bonds to be real and deposited with the federal government.

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Maryland Individual Surety Regulation Sunsets!!

The Maryland statute was allowed to expire, or “sunset” on September 30, 2014 after a bill to resuscitate the law was defeated. The NASBP (National Association of Surety Bond Producers) deserves great credit for its steadfast opposition to the Maryland law. The NASBP’s message was consistent:  Consumers are entitled to meaningful regulatory oversight.  No insurer should be exempt from having to obtain a certificate of authority as a prerequisite to conducting the business of suretyship in Maryland or any other state.

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The Impact of the Affordable Care Act on Insurance Prices and Enrollment Beyond 2014

The results of this study by professors of health finance from the University of Minnesota are rather startling and project that health insurance cost could continue to escalate despite the fact that the ACA was passed as a law that would bend the cost curve down. Two drivers for these increases appear to be the scheduled termination of the temporary reinsurance and risk corridor programs, which likely has been artificially depressing premiums.

Take a look at the below link which includes the national study as well as a 10 state impact analysis.  Using the 2014 enrollment report data and micro-simulation model funded by the U.S. Department of Health and Human Services, the professors estimate the national and state impact of the ACA on insurance prices and enrollment from 2015-2024.

Patrick Duke, Vice President-Employee Benefits

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Why Would You Place Your Insurance Through a Captive?

written by Michael Fragola, VP Business Development

Reason # 1 – Claim professionals that work for you!

If you currently write checks to an insurance company for Workers’ Compensation, Auto Liability or General Liability, you are supporting their claims unit.  In the event of a claim, the insurance company’s claim unit has some responsibility to protect your interests, but mostly the claims unit exists to protect the insurance company’s welfare.  This is not a slam on them – they’re in the business to make money and retaining the premiums you paid to them results in profit to them.

The captive model is a different world from your insurance carrier based claims experience.  Claims are reported to and managed by a Third Party Administrator (TPA).  The TPA is hired by (and can be fired by) the Captive and they are responsible to settle claims quickly, effectively and, whenever possible, in your favor.  This approach applies to closing out claim reserves (dollar amounts expected to be paid to the claimant in the future) as quickly as possible.  Often, clients of insurance companies have experienced unnecessary delays in closing claims just because of poor communications within the company.   Another reason they may not exhibit a sense of urgency is that the carrier benefits from the tax deduction on the claim reserve until it is paid or closed.  Keep in mind that a delay in closing out a reserve will have an adverse effect on your experience rating – something that occurs on all casualty business – not just Workers’ Compensation.

The “bottom line” is that retaining your own adjuster rather than relying on the insurance carrier’s means you have an advocate in your corner which results in a positive impact for controlling your claim expenses.

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HR & Finance Panel Discussion for Non Profits

Where Your Systems Intersect: Benefits, Payroll and HR

I’ve recently been talking with several of my non-profit clients about the day to day operation of their HR and Finance Departments.  We’ve discussed how they work together, how they are one in the same sometimes, and how they are often using and doing the same things but in little different ways.  This got me and my team thinking, why isn’t anybody talking about how these departments and systems intersect?

I’ve reached out to Paycom, a payroll group, I have come to know well over the last two years and Non-Profit HR Solutions, an HR Outsourcing and Resource group, that many of my clients have consulted with over the years.  Together we have put together a panel discussion covering how HR, Payroll and Benefits are coming together in this new environment of PPACA, increased DOL Enforcement and the desire to more greatly involve employees in their day to day interaction with the payroll and benefits systems.

Please join us on 5/14 at the offices of Cresa in DC for what I hope will be a very informative and interactive session. 


Paul J. Phelan, CFP

  • Date: Wednesday, May 14, 2014
  • Time: 8:00 a.m.- Reception, 8:30 a.m. – 10 a.m.- Panel Discussion
  • Location: 1800 M Street, NW, Suite # 3505, Washington, DC 20036
  • RSVP: Marlene Stringer at


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Always Verify Your Bond!

Recent news has proven that fraudulent surety bonds have become a more frequent occurrence.  It is becoming more important now than ever to verify the authenticity of the bond, a process that takes less than ten minutes and could prevent thousands, even millions, of dollars in losses down the road.  

As an NASBP member, Early, Cassidy and Schilling, Inc., encourages you to be a knowledgeable consumer of surety credit and to verify the authenticity of every contract surety bond before acceptance. You can perform this important task expeditiously by undertaking the two‐step process identified below, which will help you confirm that the surety is licensed in the jurisdiction of the
project and that the bond has been authorized by that surety.

First, check the authority of the surety to issue the surety bond:

  • Contact the state insurance department to determine if the surety is admitted in the jurisdiction of the project. With few exceptions, sureties must possess a certificate of authority from the insurance commissioner in each state in which they conduct surety business. The National Association of Insurance Commissioners provides a map with links to all state insurance departments, which can be found at Some states list admitted sureties on the insurance department web site, but a quick call to the department will ensure the most current and complete information.
  • Consult the U.S. Department of the Treasury Listing of Approved Sureties, Department Circular 570. To provide surety bonds on federal construction contracts, a corporate surety must possess a certificate of authority from the U.S. Treasury Department, which conducts a financial review of the surety and sets a single bond size limit for the surety on federal projects. A listing of certified surety companies approved to provide bonds on federal contracts, known as Department Circular 570 (or the T‐List), is updated twice per year and is posted by the Financial Management Service, Surety Bond Branch of the U.S. Department of Treasury at (see Sureties Listing). Department Circular 570 includes the business address and phone number of each listed surety and each state in which the surety is licensed to operate.

Second, verify that the surety actually authorized the issuance of the surety bond:

  • Contact the surety directly to receive verification that the surety bond has been duly authorized. All sureties listed on Circular 570 identify a specific contact phone number. In addition, the Surety & Fidelity Association of America administers a program in which surety companies voluntarily agree to receive inquiries for the purpose of verifying the authenticity of surety bonds. Surety contact information is contained in the SFAA Bond Obligee Guide, which is available at The surety will need specific information, such as the bond number, the name of the principal, the name of the obligee, the amount of the bond, the execution date, description of the project, and the name of the attorney‐in‐fact signing the bond, to verify authenticity.

Additional information, such as financial strength rating and business reputation, may be desirable to gain a broad picture of the capabilities of a particular surety. Financial ratings may be obtained from rating organizations, such as A.M. Best Company at (log‐in required). Please feel free to contact us for additional information about sureties or bond information, but nothing should replace your own exercise of due diligence regarding the authenticity of surety bonds.

This two-step process can be found at

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Can a Business Combine the Benefits of a Cross-Purchase Plan with the Simplicity of a Redemption Plan?

The answer is…. YES, with an Insurance LLC.

  1. An LLC is established, and each of the owners of a business becomes a member of the LLC. 
  2. The individual owners of a business enter into a cross-purchase buy-sell agreement that obligates them to purchase each other’s interests in both the primary business and the insurance LLC following the specified trigger events in their buy-sell agreement.  
  3. The insurance LLC then purchases, owns and is the beneficiary of a life insurance policy covering each owner of the business.  In order to pay policy premiums, the members of a business transfer cash to the insurance LLC as a tax-free capital contribution. This can be accomplished using income tax deductible compensation they receive through an Executive Bonus Plan with a business under IRC § 162. 
  4. Following the death of an owner of the primary business, the death proceeds are paid to insurance LLC income tax-free.
  5. The surviving owners then use the proceeds received to buy the deceased owner’s interests in both the main business and the insurance LLC. 
  6. The surviving business owners will receive an increase in basis to the extent of the interests purchased from the deceased owner’s estate (or trust if the owners want to get into some estate planning).

 What if an owner of a business departs from the business prior to death due to disability or retirement?  His/her life insurance policy can be transferred to him/her as part of the buy-out.  If permanent insurance is used then the departing member has the added luxury of accessing policy cash values (income tax-free) for supplemental retirement income or other lifetime needs. 

The graphic illustrates both death and retirement of a business owner. For more information on the concept, contact Paul J. Phelan, (240)864-9117 or by email at


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