As belts continue to tighten, self-insurance is becoming an increasingly attractive prospect for saving money within public and private sectors alike.
It has been around since the swinging 60’s but really started gaining ground back in the late 80’s and early 90’s. During this time there was a limited market for commercial public sector insurance such as Public Liability, Employers Liability and Property Damage.
As a result insurers were able to command very high premiums to cover any risks. Commercial insurance (e.g. covering catastrophes) had large deductibles of anything between £250k to £1m.
So organisations were left with two choices: Pay the higher premiums or self-insure becoming self-insured was the logical option. Since that time people have become more comfortable with higher deductibles.
So how exactly do you take on self-insurance? Continue reading to find out...
There is a simple 4 stage process to follow in order to implement a self-insurance programme. However, in order to ensure you make an informed decision it would be advisable to engage the services of a broker who will have significant experience in assisting organisations evaluating their level of self-retained risks.
1) Initial review
- Before jumping in at the deep end you will need to ask these key questions:
- How much do you currently pay in premiums? If your premiums are greater than the sum of the anticipated losses then it’s a no brainer.
- What is your organisation’s (e.g. board’s) attitude towards risk? Self-insurance demands the acceptance of a portion of risk. You need to be sure that there is an appetite for a level of uncertainty.
2) Conduct a feasibility study
The initial review identifies whether your organisation is suited to self-insurance. To be sure, you will need to conduct further analysis. This can be carried out by a consultant or in-house if you have the expertise. You will need to consider:
- Data collection & analysis of historic claims
- Operational considerations – practicality of implementation
- Legal requirements – are there any insurances required by law.
- Management approval
- Whether you engage a TPA (third party administrator) or invest in software and staff to manage claims in-house
3) Setting the wheels in motion
Having established that self-insurance is the right path for your organisation, you need to implement the programme. There are a few things you will need to do:
- Once you have completed your feasibility study, gain board approval.
- Work with an insurance broker to provide specific and aggregate coverage for risks that are not suitable for self-insurance.
- Draw up claims handling procedures for managing claims.
- Decide how the fund will be managed.
- Determine banking processes to access the fund.
- Implement a risk control system to keep abreast of all claims and be proactive in preventing claims.
- Invest in insurance claims software so that your insurance team can manage and report on all claims easily and efficiently.
4) Monitor the results
Once up and running, monitor results closely and make amendments to the process where appropriate. Self-insuring puts you in a similar position to an insurance company - you have a vested interest in your own losses. Things to keep an eye on are:
- Claims: Volume received and proportion/value of those settled
- Risk Management System: Make sure your processes and supporting software is performing efficiently
- Reserve analysis: How your settled claims are stacking up against your reserve
- Brokerage activities: review the performance of any claims you have passed onto your broker
This post is an extract from a recent guide we've published, titled 'A Beginners Guide to Self-Insurance'. Click below to download the full guide, for FREE: