Converting From Self-Insurance To The Voluntary Market – 10 Item Checklist
The subject of converting from self-insurance to voluntary market policies has been brought up quite a few times due to the loss of employees by some larger companies. Some Workers Comp self-insureds shrank during the pandemic due to overall bad economic conditions.
Recently, the Gross Domestic Product showed a drop of 1.4% – 1st Quarter 2022.
I received a few questions from earlier in the year from companies that were considering converting from self-insurance into other programs such as large-deductible or voluntary market policies. These are some of the steps that I recommended to the companies.
Converting From Self-Insurance Considerations/Steps Checklist
- Do nothing. What are the reasons for the conversion? Do they justify paying what would likely be higher costs with a voluntary market policy?
- Obtain multiple Loss Development Factors (LDFs) if that is the number that is the basis for the switch.
- What E-Mod would your company now have if you were not converting from self-insurance? Yes, the synthetic E-Mod number can be calculated for you.
- Is your company going to grow back to the size it was pre-pandemic? If so, switching in and out of a voluntary program may not save that much in costs.
- Have you looked at large-deductible programs or PEOs?
- Have you looked at bringing your reinsurance level lower? If you are concerned about a catastrophe or a series of severe injuries, you may be able to lower your reinsurance level to a lower amount. The flip side is that your company will have to pay more premiums to have a lower reinsurance level.
- Have you evaluated your Third Partt Administrator? (TPA). Not every TPA operates the same. A better deal may exist for claims handling. Evaluating your TPA every three years is a good idea. Three years is the timeframe most governmental units use for the evaluation of their program and to seek bids from competing TPAs.
- Your self-insured claims will not disappear when you switch. The claims will require handling until closure. Your company will have to deal with two separate insurance programs.
- A loss run review and an LDF projection will always help you establish “where you are” in your insurance program.
- Seek out advice from true experts when considering converting from self-insurance. There are many experts in voluntary market policies, not so many in self-insurance.
Converting from self-insurance can be expensive. The above checklist is only part of the picture. Seek out consultants to help your company.
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