Bickmore Risk Services and Consulting

What are the requirements for forming a Self-Insurance Group?

Once members understand the benefits and potential pitfalls of group self-insurance, BRS can help them begin the formation process.

• Members must come from similar industries and share the first two digits of their Standard Industrial Classification (SIC) code or first three digits of their North American Industry Classification System (NAICS) numbers.
• Groups must be large enough to handle the insurance risks they are agreeing to cover.
• The initial core group members must submit two years of audited financial statements and affiliate members must submit one year of reviewed financial statements.
• Members must agree to share risk jointly and severally.
• Members must undergo a feasibility study and submit an operating plan for approval by the state.

What are the steps involved in a Self-Insurance Group formation and approval process?

BRS provides guidance, assistance, and support to help private employer groups complete all steps necessary for approval by a state's Department of Industrial Relations.

• Actuarial feasibility study — In our preparation of the feasibility study, BRS determines contribution rates for the group required to cover all foreseeable losses at an 80 percent confidence level. Our actuaries analyze members' payroll, premiums, loss experience history, and recent experience modification factors to determine sufficient premiums.
• Operating plan — Working with member representatives, BRS will help develop the management structure, rating and billing plans, and underwriting requirements. Groups must also select providers for such services as program administration, accounting, actuarial, risk control and safety, claims adjusting, investment management, excess insurance brokerage, and others. A laundry list of additional action items includes preparing governing documents, coverage documents, an investment policy, and forms required by the state.
• State filing — Upon completion of the feasibility study and operating plan, groups can file for approval from their state's Department of Industrial Relations, Office of Self-Insurance Plans. We can assist groups in completing the forms and serving as a liaison between the department and the group.

Most services are available through BRS, while others, including brokerage, investment management, and claims adjusting, can be obtained from outside providers. Extensive experience working with various professionals and service providers allows us to make informed recommendations and ensure that members find knowledgeable and dependable providers.

How do you operate a Self-Insurance Group?

Once a group's application is approved by the regulator, BRS can serve as the administrator, continuing to provide guidance as the SIG begins operation. BRS is the administrator for many self-insurance programs, including the first and largest self-insured group and the Self Insured Security Fund, the guaranty fund for all self-insured programs. Operation steps include:

• Financial management — Including preparing budgets, providing accounting and actuarial analyses, calculating equity and dividends, and overseeing investments
• Administration and management — Including monitoring contractor performance, overseeing claims and litigation actions, and assuring statutory compliance
• Marketing support — Including communicating to existing and potential members via onsite meetings, convention demonstrations, and group web site maintenance
• Risk control and safety — Including helping reduce the potential for adverse loss experience by managing the SIG's loss control program

Each year, BRS verifies the soundness of the Self-Insurance Group by encouraging independent claims and financial audits of the group and its individual members, and by performing an actuarial study to review the program's overall funding and future rates.

What are advantages of a SIG?

Self-insurance essentially cuts out the middleman and puts any profits back into members' pockets. Other benefits include:

• Stable rates — Rates are based only on the group's actual claims history and are set by the board of directors made up of group members.
• Retained equity — Retained earnings accrue to the benefit of the members — not outside investors or insurance companies.
• Decreased expenses — Operating expenses can decline from an insurance company average of 30 to 40 percent to an average of 15 to 20 percent.
• Improved risk control — Members conscious of the fact each claim takes money directly from them have a greater appreciation for safety and loss prevention.
• Increased control - Members manage and control the group's assets.
• Return on investments — The group collectively establishes an appropriate investment program and retains its earnings in the fund, which will also contribute to keeping premiums low.
• Group buying power — Members can negotiate better rates on any excess or re-insurance the group wishes or needs to carry.
• Greater on-the-job safety — Increased interest in keeping claims low and risk control services tailored to members' needs help reduce claims.
• Loss cost reduction — Post-loss cost-containment efforts, including return-to-work programs, help reduce the overall cost of loss.
• Better protection against fraud — Members pay more attention to claims filed, which leads to attentive claims management.
• Less exposure — Unless specific events are expected to directly affect the group, members do not pay more to cover unrelated catastrophic events.

Are there any disadvantages of a SIG?

Significant cost savings and improved safety are leading many companies to take advantage of an opportunity available to them since 1993. Until rates began rising in 2000 and with no relief in sight, private employers shied away from group participation for several reasons:

• No guaranteed fee structure — Ultimate costs of operation and claims are based on performance and cannot be guaranteed. Employers know how much they will pay private insurance companies, but group costs are not set the same way. If contributions and investment earnings are not sufficient to cover costs, members may be required to make additional contributions.
• Joint and several liability — Members are liable for one another and for the group. If one group member goes bankrupt, the rest of the group must cover any outstanding unreserved and uncollateralized claims. In addition, a costly claim against one member or a poor safety record may reflect directly on the amount each member pays.
• Active participation — Group insurance requires member involvement. Members used to paying premiums and not thinking about coverage must now participate in overseeing program administration and risk management.

Though new to the private sector, the group insurance model has proven successful for countless public agency groups.

What is meant by SIG joint and several liability?

The members are jointly and severally liable for claims below the reinsurance levels. Any Self-Insurance Group is subject to joint and several liability, however, it is unlikely a member will be responsible for any more than the annual premium proposed and quoted at the policy inception date due to the reinsurance structure plan. Each member is required to sign an Indemnity Agreement (Form A4-8) containing the above condition and additional terms.