What is Self-insurance protect?
Whilst the main objective of self-insurance is to save premium and improve a company’s financial performance, self-insurance differs from standard insurance programs in that it requires a company to adopt many of the functions of a traditional insurance company.
Across the world today, thousands of companies are benefiting from an alternative way of buying insurance to protect their businesses and their employees. The process is known as self-insurance and if it is right for your business then the potential benefits can include lower insurance premiums, improved insurance coverage, more reliable insurance, a safer workplace and an improved bottom line.
Why Ascend for your Self-insurance protect?
- Lower fixed costs (program administration)
- Reduced losses through better loss control
- Improved cash-flow
- More visibility on claims control
- Improved overall performance
- Invest profits
Key steps towards self-insurance…
Multi Class SIR
Traditionally, business insurance transfers risk from you to the insurer via your premium. However, a changing and increasingly complex market means there are alternatives. For instance, if you’re spending a six-figure sum on annual business insurance premiums with a high volume of claims, self-insurance enables you to pass on less risk to your insurers.
We can help you decide if this a viable solution and help you set aside a fund within your business that means you can handle the minor claims yourself or with our own in-house claims team, reducing costs overall.
Our solutions are tailored to meet individual needs and to strike your desired balance of risk transfer (to an insurer) and risk retention (by you), utilising a broad range of techniques, including, deductible funding or captives.
Self-insurance is especially well-suited to businesses with predictable loss patterns. On portfolios where losses are frequent and normally of the same size, commercial insurers can calculate and charge premiums with a degree of certainty.
Advantages and disadvantages
A risk retention review with our feasibility study will play a role in determining viability and pressure points. Prior to performing such a study, companies will need to be aware of both the advantages as well as the disadvantages of establishing self-insurance programme.
Making the decision to self-insure
Self-insurance requires a long-term approach. Not only will a company incur some cost, both in management time and expense from initiating a self-insured plan, but in addition, the benefits of self-insurance are often only realised after a period of time.
A company or group considering self-insurance must be satisfied that the size of the portfolio to be self-insured is large enough to warrant the costs incurred. These costs can include: establishing a loss fund, setting up claims administration and loss control systems, paying legal expenses, as well as the initial cost of purchasing insurance or reinsurance.
Captive insurance companies
Before forming a captive insurance company, it is important to perform a feasibility study to determine whether or not the setting up of a captive is a viable proposition. Part of a feasibility study should involve a review of a company’s current insurance program compared to what might be achievable under a captive insurance scenario.
Preparing a feasibility study for a risk retention group
We can provide you with a detailed feasibility study. The feasibility study looks at past and present claim trends, payrolls and premiums and develops expected “claims trends” for the risk, moving forward. When completed, the feasibility report should answer, “do the numbers work for us?”
Frequently Asked Questions
Whilst a deductible or excess is often viewed as a type of self-insurance, a self-insured retention increases a company’s financial interest by requiring it to pay and actively manage claims up to a certain pre-determined amount.
When adopting a self-insured retention, an awareness of insurance, claims handling and risk control is required. Consequently, this approach was best suited to larger companies that have the resources and knowledge to manage their claims exposures. By creating an awareness of these exposures, providing you with access to our risk management portal & applying resources to manage them can often be a first-step towards a broader self-insurance arrangements.
Often, clients reach the stage where they perceive that the cost of the premium is excessive given the nature of the risk, and their own claims history. This is where a decision has to be made. Do we continue to pay away premiums and subsidise the insurers and their clients with higher claims histories? Or do we investigate alternatives to conventional insurance? If we choose the latter, this is called “Alternative Risk Funding”.
The most basic form of “Alternative Risk Funding” is Self Insurance. Self Insurance may take the form of just accepting the risk, doing nothing, and dealing with each loss as and when it happens. Alternatively, it may include setting up internal funds specifically set aside for the particular risks involved.
The form of self insurance chosen will depend on the size and number of losses expected. High frequency, relatively low cost losses such as Motor Own Damage are well suited to self funding. We suggested that Third party injury and damage losses are, initially, omitted from the exercise. Third Party claims are less controllable
than Own Damage. It is preferable that the funds set aside for self insurance are closed off as soon as possible at the end of each year to ensure the accuracy of loss data upon which the following years’ Self Insurance will be based. Typically, third party claims, especially those involving injury, take far longer to settle than “in house” own damage losses.
Insurers apply varying level of analysis to past claims histories to establish future premiums. For large motor fleets, the “Burning Cost” basis is frequently used. Other, more statistically accurate, methods are also used. However for the purpose of this exercise, we will follow the method commonly used in the industry.
You don’t have to pay insurance premium tax (IPT), on any self-insured fund which is now 12%.
There are however additional set up charges and normally a letter of credit will be required by the insurer who will step in at a pre agreed claim level.
Fleets that self-insure need to ensure that all drivers are focused on the cost of collisions, preventing them and – in the event that they do occur – reporting them quickly and efficiently so that the third party claims can be handled appropriately.
Self-insuring sharpens fleets need to have robust risk management procedures. Fleets that place a strong emphasis on risk management are more than likely to be the ones that actively consider implementing self-insurance.
We have noticed an increase in the number of queries from fleets looking to implement self-insurance recently, although the numbers involved are still relatively small in the context of the numbers of conventionally insured fleets once costs have been reviewed.
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Who to speak to?
Matthew has 31 years broking and underwriting experience, both as part of the management team at an award-winning independent broker, as National Broking Director and UK Board member at Oval Insurance Broking and as Market Management Director at Arthur J Gallagher.
Matthew’s contact details can be found below or, if you would prefer, please complete the contact form at the bottom of this page and Matthew will contact you at your convenience.
M: 01245 449061 E: Matthew.email@example.com