Self-insurance is a classic risk management tool to be considered whatever the state of the economy or whether the insurance market is in an up or down cycle. Self-insurance offers a potential means for lowering overall program costs, achieving a greater degree of independence from the commercial marketplace, and achieving more effective management of claims activities.
At WFDR Risk Services we are experts in designing and managing self-insurance funds for clients, using our local knowledge and international experience. Our self-insurance consulting covers all aspects of self-insurance from initial feasibility through advice on on-going self-insurance strategy to, where required, self-insurance fund wind up.
We also provide the complete range of self-insurance fund related corporate services. From record keeping through claims and underwriting analysis to preparing financial statements, our team provides the complete range of insurance accounting and management information services. Providing regular management reports and liaising with financial and technical advisers and regulators is also part of our service.
Below are a few advantages and disadvantages of this risk management tool.
FACTORS INFLUENCING THE DECISION TO SELF-INSURE
There are three basic financial issues that a company needs to consider when contemplating self-insurance.
- The size of the organisation
- Past Loss experience
- The Cost of Reinsurance
PREPARING A PRELIMINARY ASSESSMENT
It is relatively easy to conduct a preliminary assessment of the suitability of self-insurance for any given company. This initial assessment is conducted by us together with your in-house risk management staff.
In the preliminary assessment stages we will look at areas that include:
- What is the organization’s appetite for retaining risk?
- Are losses under control and less than expected for similar size firms in the same industry?
- Is reinsurance readily available and at a reasonable price?
- How would the existing risk management department handle the increased administrative responsibilities posed by a self-insurance program?
- Is self-insurance compatible with the anticipated growth or contraction of the company’s operations?
- Is senior management receptive to new risk management ideas and strategies?
The data required to complete such a study generally include:
- A minimum of five years of historical losses & a listing of large losses over the past five years with some description detail;
- Information pertaining to the risk management department’s staffing, structure and capabilities is also useful in assessing how best to handle the additional administrative responsibilities of a self-insurance program.
- In comparing the cost of a proposed self-insurance plan there is need to look at actual market quotations.
MANAGEMENT OF THE FUND
Below is an indication of how the fund will be set up:
- A self-fund agreement/service level agreement will be signed between Insurer, Broker and owner/binder holder
- The fund will require a capital injection in cash,
- The fund will have rules of cover, exclusions and rules on claims management.
- An investment mandate agreement is signed between you and the administrator
- The premium will be invested in line with Insurance’s investments policy as guided by the Insurance Act Chapter 23.01. The fund is to have an investment committee that will constitute your representatives, the broker and the underwriter.
- Normally the broker and the underwriter are remunerated through management fees that are agreed upon.
- The fund will have a catastrophic reinsurance cover
IF YOU ARE CONSIDERING SELF INSURANCE WFDR CAN ASSIST WITH
IF YOU ARE ALREADY SELF INSURED, TALK TO US ABOUT