Self Insureds Need To Consider Their Reinsurance Purchase
One of the most costly mistakes with Workers Comp self insureds is not putting enough effort into searching for and securing reinsurance, also known as excess insurance. Self Insureds letting the Third Party Administrator (TPA) shop and choose the reinsurance may not be the most economical to purchase this coverage.
Reinsurance is basically where the self insured employer secures coverage from a carrier in case of many claims (aggregate) or in case a prescribed amount has been spent on a certain claim. The aggregate is usually a figure such as $5 million. The per claim limit is usually $250,000 of retained risk by the employer. The $5 million and the $250,000 limits are known as retention levels. The employer retains all of the risk up to those figures.
Even worse than allowing their TPA to choose the reinsurance carrier is not monitoring the loss runs to make sure that claims are reported timely to the reinsurer. Nothing will set off the alarms at a reinsurer more than when a TPA has not reported a claim with reserves (not paid) over $250,000.
Even if the contract with the TPA stipulates that the TPA’s claims department is responsible for reporting to the reinsurer, the employer has the final responsibility. This may be a good subject to bring up in meetings with the TPA or when authority is asked to increase the reserves beyond $250,000.
One area that TPA sometimes seems to slip is not the original reporting of exceeding the retention level. It is the follow-up status reports that must be filed with the reinsurer.
If you are self insured and do not have a copy of your reinsurance contract for Workers Comp, now may be a great time to request it. Read over it very carefully.
One of the recourses that reinsurers will use is the outright denial of coverage due to reporting issues. You may be surprised to find reasons that will have your reinsurance claim denied right in the policy.
Why am I writing this article? We have an employer that has asked us to review the denial of reinsurance by the reinsurer for faulty reporting. The TPA contract says the employer has the ultimate responsibility for reporting the claim to the reinsurer. The reinsurance contract was made with the employer. The employer may have to pay out even more funds after paying for reinsurance they may never get to use. This is going to be messy.
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