Aligned Risk Management “Effective Strategies to Help Vendors Obtain Bonding and Insurance”

2015

Presented By

Ingrid Merriwether

Merriwether & Williams Insurance Services

Aligned Risk Management

CONCEPTS • Insurance and Bonding are forms of financial credit. Access to

which is inherently less accessible or costly to minority/small/DBE businesses – Community-Based Businesses.

• The ability and extent to which Local Small Businesses have

access to insurance/bonding credit, impacts their ability, to local public business opportunity and participation.

• And…Public Agencies diminish their capacity to engage the

businesses in the community they serve, and capture cost savings or the multiplicative economic benefit.

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Aligned Risk Management

ENABLING INNOVATION Removal of barriers like insurance and bonding enables innovation

– Public agencies are more likely exposed to unique products or solutions – the by-product of entrepreneurism synonymous with small, local and diverse businesses.

– Cost of services, including enhanced service solutions,

offered more competitively from growing community-centered businesses. This also helps grow local jobs and the local economy.

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Aligned Risk Management

BARRIERS • How Does Insurance Act as a Barrier to Small Firms?

– Small Contractors, in particular, Can’t Obtain Insurance Needed for Large Projects

– If They Can Obtain Insurance

• Small Contractors Pay More – Competitive Disadvantage

– Don’t Have Volume of Work to Support High Levels of Insurance

– Small Contractors Need Help Meeting Safety Requirements

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Aligned Risk Management

BARRIERS

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Why is bonding such a problem for small contractors?

Surety Prequalification / Underwriting Capacity to perform Financial Strength Track Record & History of Company Organizational Structure Business Continuation Plans Trade References Analysis of all Projects in Progress Credit History Good Character Working Capital Other Hurdles Broker Representation Quality CPA Prepared Financial Statements

Proven Capacity

Track Record Of Bonded Work

Access to Surety Credit

Bonds Needed to Access Contract Opportunities

Given the risk accepted by the Surety when issuing a bond on behalf of a contractor, their underwriting standards dictate a complete analysis of the contractor’s entire business operations. They must determine the contractor’s ability to meet current and future contract financial obligations.

Aligned Risk Management

REMOVING BARRIERS What Can Be Done to Remove These Barriers?

• Provide Insurance and Risk Services for All Contractors on Large Capital projects through an Owner Controlled Insurance Program (OCIP) 1. Provides Contractor With a Complete Package of Insurance and

Risk Services

2. Levels the Playing Field for Subcontracting Opportunities

• Removes Cost of Insurance as a Competitive Factor

3. Encourages Subcontracting to Small Firms

4. OCIP saves 1% to 2% of Total Construction Cost

5. May Give Small Firms Opportunities as Primes

6. Supports Outreach and Other Small Business Development Efforts

7. Benefits to Owners, Primes and Subcontractors of every tier

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Aligned Risk Management

REMOVING BARRIERS Bonding Support and Contractor Development Programs

– Measured and Managed Risk Retention-Leveraged to Enlarge Pool of Qualified Contractors to Compete and Participate in Public Construction Projects.

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Aligned Risk Management BOND ASSISTANCE PROGRAMS

• Better Prepare Contractor for Bond Underwriting and Business Growth

– Consultative Services / Contractor Assessments (Pre-Qualify)

– Referrals to qualified resources, broker, bank, CPA

– Assistance/Subsidy towards CPA Prepared Financial Statements

– Facilitate Collateral Support and/or Funds Administration as Needed

• Mitigate exposure to the Surety Company

– Bond Guarantees

– Third Party Funds Administration

– Contract Monitoring

– Pre-Claim / Default Problem Resolution

• Program partners

– Brokers, Sureties, Funds Administrators,

CPA’s experienced in servicing small contractors Page 8

How Does A Bonding Assistance & Contractor Development Program Help?

Aligned Risk Management BOND CONTRACT FINANCING SUPPORT

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$171

$746

$40

$214

$14 $6.2

In Millions

“The Power Of Leverage”

Aligned Risk Management

RISK MANAGEMENT

• Program Management by Surety/Business Development Professionals • Third Party Funds Administration • Status Updates / Two-Way Communication / Pre-Claim Mitigation

• Field Project Support and Monitoring • Collateral Management / Transaction Closeout • Indemnity Agreements

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Aligned Risk Management

COST CONSIDERATIONS

• Programs Guarantee Pool- Contingent Liability – Leverage Collateral Dollars – Funded vs. Unfunded

• Third Party Fees

– Bank Letter of Credit Fees – Funds Administration- 1%

• Program Consulting & Administration

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Aligned Risk Management CURRENT MWIS CONTRACTOR BONDING, CONTRACT FINANCING & TECHNICAL ASSISTANCE PROGRAMS

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Aligned Risk Management

CONCLUSIONS

• Management of Risk Need Not Be Mutually Exclusive of Enabling Access & Creating Opportunity.

• Innovation in Risk Management Practices Can Open Doors and Achieve other Agency Goals including Cost Savings.

• Bonding and Insurance are a part of overall Business Growth and Development

• There are Solutions Which Can Change the Status Quo Paradigm.

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Merriwether & Williams THANKS YOU

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OUR MISSION

To establish a new industry paradigm in risk management that

enables innovation, opens doors, and creates better

synergies between business and community.

Questions & Answers

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