Would Honeywell have the same degree of protection under the new program as it had had under its existing program?
Honeywell claims that it will have the same degree of protection under the new program that it held in the current program. By combining each individual risk and its respective insurance plan into one master insurance policy, Honeywell believes that it will offer the firm the same degree of coverage and policy protection that it has under the current strategy at a reduced (15-20% less) cost. When comparing the two programs aggregate retentions (deductibles), the case states: “This aggregate retention was set to approximately equal the sum of the separate retentions under the current program. The $30 million retention also roughly equaled the firm’s expected annual losses for the portfolio of covered risks.” This essentially means that in both plans, Honeywell self-insures, or covers, the first $30 million of annual losses. As far as the coverage limit, they are similar in the sense that barring significantly extreme cases of loss, the additional protection provided by the insurance coverage in both cases is somewhat indifferent. According to Exhibit 8, the coverage limit for General/Product Liability, Auto, and Workers’ Compensation all has a maximum coverage limit of up to $300,000,000; albeit, the current retention plan offers this per occurrence (note: it is highly unlikely to have multiple losses of $300,000,000 in one year). The Aircraft Products Liability also is insured up to $1 Billion in both the current and proposed plan. Thus, the coverage package of each plan is very competitive; the level of insurance offered is similar and Honeywell estimates that the amount of deductibles that they will have to pay under both plans is roughly the same. This makes the current plan an attractive option if the reduction in costs that have been predicted can actually be realized: the firm would be responsible to pay approximately the same amount in...
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