As the year comes to a close, there are a number of things both large and small firms need to think about, one of these things being insurance policies. In this episode of The Florida Bar Podcast, hosts Christine Bilbrey and Jonathon Israel talk to Chip Trefry about end of the year insurance planning for lawyers. They discuss what types of insurance lawyers should think about, including health and cyber insurance, and the details of group coverage and tax benefits.
Earl “Chip” Trefry is the owner and CEO of Member Benefits, a full-service insurance and financial services organization.
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The Florida Bar Podcast
Year End Insurance Planning for Law Firms
Intro: Welcome to The Florida Bar Podcast, where we highlight the latest trends in law office and law practice management to help you run your law firm, brought to you by The Florida Bar’s Practice Resource Institute. You are listening to Legal Talk Network.
Christine Bilbrey: Hello and welcome to The Florida Bar Podcast brought to you by the Practice Resource Institute on Legal Talk Network. We are so glad you are joining us. This is Christine Bilbrey. I am a Practice Management Advisor at PRI and one of the hosts for today’s show, which is being recorded from our offices in Tallahassee, Florida.
Jonathon Israel: Hello and I am Jonathon Israel, the Director of The Florida Bar’s Practice Resource Institute. Our goal at PRI is to assist Florida attorneys with running the business side of their law practices. We will be focusing on a different topic each month and we will carry the theme through our newsletter, website with related tech tips and articles.
Christine Bilbrey: So, this month at PRI our topic is Year End Planning and joining us today is Chip Trefry. Chip is the Founder and CEO of Member Benefits, Inc. It’s a little bit confusing because at the Florida Bar, we have the Florida Bar Member Benefits and Chip’s company is a member benefit.
He graduated from the University of Florida in 1972 and has spent most of his career specializing in helping professionals with their insurance and planning needs. Welcome to the show Chip.
Chip Trefry: Thank you. My pleasure.
Christine Bilbrey: So, Chip, please tell our listeners a little about yourself and your company, Member Benefits.
Chip Trefry: Well, as you said, we have been doing these professionals for some close to 40 years now and we try and work with the smaller law firms, CPA firms, and medical practices through the associations that they are members of. Our longest standing client is the Florida Bar, for almost 30 years, and we also have the State Bar of Texas, the Missouri Bar and the State Bar of Georgia as clients.
We have somewhere in the neighborhood of 15,000-18,000 law firms that seek their advice in regards to benefits through our company.
Jonathon Israel: So, Chip, as some of these solo and small firms are getting to kind of wrap up their year-ends and look forward to the next year, what are some of the things they should be considering in regards to their insurance coverages as they start to plan out the next year for?
Chip Trefry: Well, of course the 800-pound gorilla is the health insurance problem that everybody is facing today and the increasing costs and proportionately the smaller the firm gets, the bigger the problem is. So therefore, that’s why we work with an awful lot of the two, three, four-person type law firms and even the sole proprietors, those that have no employees.
The biggest problem is that the carriers have exited the market or many, many of them have exited the market, especially on the individual major medical policies and there’s also been some significant increases in the cost of the insurance; particularly on the individual major medical, but that’s probably the biggest issue that law firms face at the end of the year is most of them have renewal dates of January, so they are starting to look in November at which carrier they might need to move to if their carrier exited, or what plan they might need to consider for themselves, for their employees, what deductibles they ought to consider.
And interestingly, there are some new solutions in the market; one of them is called Level Funding, which can go all the way down to several carriers offer this product. It’s kind of like a self-insured option for very small law firms, where you can actually store reserves if your firm has a successful year and the claims are low. Those reserves then can be used the following year to either increase your benefits, take lower deductibles and lower co-pays without additional cost or they can use it to stabilize the premium.
That’s become very popular. We have done quite a few of those for firms, anywhere between three, four employees, up to 50 employees. And when you get into the above 50 space, you can start looking at some options of fully self-insured, risk involved in the fully self-insured plans versus the no risk on the level funding.
And then last is what most firms are used to having presented to them is the fully-insured options and the fully-insured is just the normal premium versus benefits, if your experience is bad, it’s not going to affect necessarily your firm if you are in the under 50 marketplace because the rates are controlled. So, there’s no real rewards in having a good year.
There’s incentive from the health insurance carriers to try and motivate employers to incent their employees to become more healthy, for many reasons. One it drives down the cost of the health insurance and it also increases productivity in regards to their coming to work and being more productive.
Other considerations on the year-end are disability income, look and see if your incomes have increased on yourself and your employees, do you have the proper amount of disability insurance to insure a disability. It should be determined first how much non-can individual DI policies that can — if you have a proper documentation, can be paid for by the law firm.
It can be an expense to the firm. And it’s the first step in disability planning is do you have the proper amount of non-can. Then secondarily you go and look at the amount of group health insurance that you might purchase in the firm to see if you want to insure anywhere between 60, between the two products up to as much as 100% of your income.
Christine Bilbrey: So, if a solo or very small firm comes to you through the Florida Bar, are you able to get them better rates than if they just went out on their own to sign up for a policy?
Chip Trefry: Yes, we do. We have a group policy with Guardian through the Florida Bar that say — it’s a very inexpensive option for an individual to purchase; whether they are a small firm and they purchase it just for themselves or whether they work for a large firm that doesn’t offer disability insurance.
And it’s also an alternative to purchasing an individual non-can policy in the open market, which is about three times more expensive.
Christine Bilbrey: Wow. And is there a set enrollment period, if someone is coming to you, do they have to come during certain months to get it to start in January or can someone come midyear and decide to add health benefits for their employees?
Chip Trefry: Yes and no. If you are purchasing an individual major medical policy because you are a very small firm, a firm of one let’s say, then there’s the open enrollment which starts this week and you have that period of time, where the enrollment, the carriers have to take you.
During the rest of the year, if there’s a life event that occurs, like you lost your job, so therefore you lost your group insurance, you got married, you move to a different location and there’s several more events that can take place called life events, which will cause the carriers to have to sell you a health insurance policy.
For the group insurance policies, for the larger firms, five or more employees or typically they are going to almost always buy a group policy, where one policy insures all the members of the firm, there’s no real enrollment period for that. It’s just that most firms do renew at the end of the year, December 31, January 1 start date.
Jonathon Israel: And you said for that there’s five or more employees, is there a set limit, a minimum that they need to have in order to get the group rates?
Chip Trefry: The five is typically where you are not going to see a firm of five or more buying individual major medical policies, but no, it can go down to, I believe, two in the State of Florida; I know it’s two in Texas, and Florida I believe it’s two.
Jonathon Israel: And are there tax benefits that these small firms are seeing by offering the insurance for their employees that they are going to get some extra benefits for it?
Chip Trefry: Well, that’s interesting because the executive order that just came out, if it goes through, will allow employers to purchase individual major medical policies or individuals to purchase it and expense it, where there is limits on that currently, if you buy an individual major medical policy. And let me explain that, individual means the policy is issued to the insured. Group is issued to the company, the firm.
The group benefits are always deductible to the firm, the cost of the insurance. And on the individual side, the executive order that President Trump put out a couple of weeks ago will have the premiums treated the same on individuals as for group once it’s enacted.
In regards to the question earlier on how many employees you have to have to get a group policy in Florida, it’s the same as Texas, it’s two.
Jonathon Israel: Okay. And in Florida, are you required to offer insurance to your employees?
Chip Trefry: No. Lots of firms, they will buy an individual policy for themselves. If they are a lawyer and they might have a secretary, hopefully she is covered somewhere else, but it’s not mandatory that you offer insurance to your employees.
Christine Bilbrey: And what if their only employee is a spouse or family member, is that a consideration when they are looking into plans that they qualify for?
Chip Trefry: Yeah, in Florida the spouse will not count as an employee, they still have to have another employee. So, the spouse, if they have another employee, then they qualify for group coverage, and then the spouse would be covered if they truly are an employee as an employee or they could be covered as a spouse, spousal rider, because at the end of the day you have got to have an employee working for you in order to qualify for the group insurance.
Jonathon Israel: Sure, makes sense.
Chip Trefry: It’s interesting that the trend now has gone from individual major medical policies that were significantly less expensive approximately four or five years ago and now what’s happened is the individual major medical policies have become more expensive than the group on average.
So, there is a big trend for small employers to try and qualify for group insurance so that they can reduce their costs.
Jonathon Israel: And then in regards to some of the other insurance areas, as far as professional liability or other coverages that firms should be looking at at the end of the year, what’s your advice to them as they review those policies?
Chip Trefry: Well, just pick a few areas that should be looked at. One is of course professional liability is always a big issue and most attorneys have professional liability, particularly those that are forced to have it by their clients.
There is cyber insurance now that’s becoming a big concern in the industry, and there’s programs out there where you can test your firm for a risk assessment to determine how vulnerable you might be to a cyber attack or to be hacked as they call it or black screened, where somebody comes in and just shuts your — all your systems down. So those are typically very inexpensive and sometimes free, where you can have yourself assessed.
The ultimate goal of those companies that are offering those services of course are to ultimately have the firm purchase cyber insurance to cover the liabilities that exist because of somebody hacking you.
The program will offer ongoing assessment, where you can — there is those who will come in and make sure that you are in compliance with the law, and also offer an executive summary that will describe all the things that you need to do to improve your system. And then if you want the systems sometimes will offer ongoing monitoring and compliance.
Some firms are subject to audits, SOC 2 audits, like we are as a TPA and those audits are now getting much more particular about the cyber attack potential and asking for you to go and get certified that you have done everything you can to avoid that problem arising. And that if you actually do have a cyber attack take place that you are adequately insured.
Insurance will cover restoration of your system, liability breach, what liability you might have caused to your clients for having that information breached; business interruption, you could be shut down for some period of time and loss of income, so insurance should cover the business interruption. You might possibly have to have accounting, forensic accounting, it covers that; and then fines, regulatory fines. Those are the broad coverages that should be considered in a cyber policy.
Jonathon Israel: And I think that there is a big misconception out there with some of those small firms that their professional liability insurance will just cover the cyber attacks, but that’s not the case in some of these, and especially as it comes to the restoration, like you were talking about and some of the other areas that they really need to be paying attention to, that the professional liability just doesn’t live up to having a separate cyber insurance policy out there as well.
Chip Trefry: No. The studies that we have done for our bar clients around the country show that there — even the riders that are available that you can put on a professional liability policy is still very limited coverage. And firms will be surprised at how low the premium can be to go ahead and get full coverage for cyber; it can be as little as $400 or $500 a year to cover the firm up to as many as five employees.
Jonathon Israel: It’s almost a no-brainer at that point.
Chip Trefry: It is. The typical cost to have the assessment done can be as much as the insurance would be in some cases. A lot of associations are now looking at endorsing cyber type products and the Florida Bar has done it, and so has Texas.
Christine Bilbrey: Is there a one size fits all, like if someone approaches your company to get cybersecurity insurance and they really don’t know that much about it, are there different levels, are there different products or do you have people there that can guide them through to figure out what they need?
Chip Trefry: We do and it does make a difference in the size of the firm. We have two carriers; one would be for the small firm, up to somewhere in the neighborhood of 50 or 60 employees, and then once you get above that, we are going to go to a different carrier.
So yeah, there is not a difference in the coverages, it’s a difference in the insurance company for the small firm and then the carrier for the large firm.
Christine Bilbrey: So, what other kinds of insurance does your company offer? Can attorneys get dental or vision? Are there other things that they could look into with you?
Chip Trefry: Yeah. One area is 401(k) plans, which is one of my favorite areas to work in. It’s interesting to me that the 401(k) is a product that’s purchased by a firm when their income starts going up, and sometimes they will start making some money, they will start their firm off, they will bring their employees in. They came from other firms, so they came from the firm they left from or they are just a startup, and they put in what would be called like a safe harbor, basic 401(k) plan where you can put up to 15% of your income into the plan, and that satisfies the need immediately to hire and attract the type of employees that you want in the firm. But ultimately when the firm becomes more successful, the formula needs to be analyzed to see if it’s really maximizing what it can do for the partners
And then there’s what’s called a safe harbor new comparability formula that will skew more money toward the owners of the firms, that of course being the lawyers.
And then ultimately if there is a real big need for tax deductions and because the firm has now become extremely successful and the marketing pieces that I have seen, we are talking the $350,000 to $400,000 range for the owners, that they have hit that level, they are looking for something more than what a 401(k) profit sharing will offer. There is what’s called a defined benefit plan and that’s where you can get well above those $50,000 to $55,000 a year deduction that you can put in the account for the owners and the profit sharing goes significantly higher than that in a defined benefit. That’s one area.
Christine Bilbrey: And the 401(k), is that available to the very small firm say three people, can they start a 401(k) plan there?
Chip Trefry: Yes, they can, absolutely.
Christine Bilbrey: That’s excellent. And I think that that’s an area that’s overlooked, especially young attorneys, because they think they can’t afford to do that yet. Do they have to put — is there a minimum amount that they have to go ahead and put into that 401(k) to start, or what’s the threshold for them to get it started?
Chip Trefry: No, there’s no minimum, but you will see a firm, let’s say two partners, and they have got three or four employees, so three, four, five employees, $40,000 to $55,000 a year contribution for the whole firm, probably about the lowest you would want to start it off at. That’s including what the employees would put in, because they can of course match, put their own money in the plan.
It’s crucial that you pick a provider that does on-site enrollments rather than just having the employees go on to a website and learn about the plan, because the websites are never going to excite them into putting their own money into it and if they don’t contribute, then the plan won’t work as efficiently as it will if the employees contribute.
Christine Bilbrey: That makes sense.
Jonathon Israel: Yeah.
Christine Bilbrey: So, it looks like we have reached the end of our program and I want to thank Chip Trefry for joining us today.
Chip Trefry: Thank you.
Christine Bilbrey: And Chip, if our listeners have questions and they want to follow up, how do they reach you and your company?
Chip Trefry: They can go on to the Florida Bar website and look for the Florida Bar Member Benefits and they will see the Florida Bar Private Insurance Exchange and they can call in on that number.
Christine Bilbrey: Great. Thank you Chip. So, if you liked what you heard today, please rate us in Apple Podcast. Join us next time for another episode of The Florida Bar Podcast, brought to you by The Practice Resource Institute on Legal Talk Network. I am Christine Bilbrey.
Jonathon Israel: And I am Jonathon Israel. Until next time, thank you for listening.
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