Is Self-insurance Ripe for the Picking?
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Core Elements of a Self-insurance ProgramSelf-insurance is a financial arrangement in which a business keeps records of its losses and maintains a formal system to pay for them. It's a good fit for organizations that have a tolerance for retaining risk and a willingness to devote capital and resources to financing and administering a self-insurance program. Frequently, a self-insurance plan is combined with a plan that transfers risk to an insurance carrier above a certain threshold (retention). Many states require a self-insured organization to purchase excess insurance.
Administration of a self-insurance program requires extensive resources devoted towards claim adjustment, loss reserving, record keeping and litigation management. Commonly, organizations on a self-insurance program will enlist the services of a Third Party Administrator (TPA) to assist in this administration. Beyond claims administration, self-insurance also requires that an organization meet qualifications of the state(s) in which it seeks to self-insure loss exposures and make regulatory filings to such state(s).
Picking GreenCompared with a traditional insurance program, self-insurance programs provide several advantages, including:
- Control over claims - an organization can exercise direct control over the adjustment of its claims
- Risk control - when an organization directly pays the cost of its own losses, it has an incentive to prevent and reduce them through risk control
- Long-term cost savings - long-term costs tend to be lower than the cost to transfer risk to an insurance carrier
- Cash flow benefits - cash flow is generated by retaining losses that are paid over a period of time, rather than paying the upfront cost of insurance
Recipe for SuccessReach out to your current insurance broker to see if a self-insurance program is the right hard market strategy for your staffing or PEO business.
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