Self-Insuring Workers' Comp

Take Control of Your Costs

For hands-on employers, there are myriad benefits to self-insuring your workers' compensation program.
By: | April 25, 2016 • 2 min read
Stethoscope and money

Ever asked why would you self-insure your workers’ comp risks? I can think of two reasons.

First, if done right, it will provide better care for your employees and save money. Self-Insurance is a great way to accomplish the twin goals of the grand bargain, taking care of people and taking care of business.

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Many employers also self-insure to align their workers’ compensation programs with their corporate values. They know that no vendor will have the same feel for their employees, their workplace or their business as they do. For the employer with the will to make the investment in time, the ROI is substantial.

Self-insurance is not an opt out plan. Rather, it is an alternative way for the employer to work within the workers’ compensation law, have some control over how their employees are handled in the system, and still retain exclusive remedy and common law defenses.

A self-insured employer is the carrier for workers’ compensation claims and can specify how, within the law, claims are handled. While most self-insureds use a TPA to administer claims, they can ensure their employees are treated with dignity and respect and can do away with many of the administrative frictions that irritate injured workers and employers alike.

Self-insurance is a great way to accomplish the twin goals of the grand bargain, taking care of people and taking care of business.

This is for the hands-on employers, the ones who want to manage their business and reap the rewards. Like the rest of workers’ compensation there are several moving parts to self-insurance.

The employer’s investment is primarily the time it takes to manage their workers’ compensation program. Depending on the size of their organization, this can be an additional duty or a full-time position, but must be at a decision-making level to be fully effective.

Self-insured employers have a great deal of flexibility in structuring their programs. They can choose the level of exposure, who administers their claims, and vendors such as utilization review, bill review and case management.

Companies with a moderate to large number of employees will always pay their workers’ compensation losses over time. Premiums and experience modifications exist to make sure that happens.

The self-insurance option can sound a little scary, and many employers don’t really understand how it works. After all, premiums are a known cost and losses are a risk.

There is help available on the nuts and bolts through self-insurance associations in most jurisdictions. Information on who to contact about qualification and referrals to other companies currently self-insuring will be available for employers who want to explore this alternative.

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Desire is the first step. Information is the second. If it sounds like a good idea for your company, do a little research and talk to other self-insureds. If you decide its right for you, your broker or an outside consultant can help you set up a program.

Many employers are just dissatisfied with the value proposition of how their injured employees are treated vs. the cost of insurance and lack of control.

Self-insurance can address all of those issues and put the success of the program squarely in the hands of the employer.

Sam McMurray is the Executive Director of the Texas Self Insurance Association and the Texas Certified Self Insurers Guaranty Association. McMurray has 22 years' experience managing a global workers' comp program for Lockheed Martin. He can be reached at [email protected]
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RIMS 2016

Captives See Growth for Terrorism Risk

Captives can cover risks excluded from conventional terrorism policies and the potential gap left by the Terrorism Risk Insurance Act.
By: | April 13, 2016 • 2 min read
terrorism photo

An advance look at the “2016 Marsh Captive Benchmark Review” revealed a substantial growth in the number of captives targeted to terrorism coverage.

In the last three years, nearly 40 captives by Marsh clients were created to cover risks excluded from conventional terrorism policies and/or to provide access to reinsurance to cover the potential gap under the Terrorism Risk Insurance Act, said Ellen Charnley, San Francisco-based managing director, captive solutions, during a RIMS luncheon session on April 12.

“That’s a big growth area,” she said.

In addition, more than 20 other captives were formed to address international terrorism risks, she said.

Typically excluded perils include nuclear, biological, chemical and radiological risks, as well as cyber terrorism, and the captives provide access to the government backstop.

Other non-traditional coverages that are seeing captive growth are medical stop loss, cyber, international employee benefits, political risk, supply chain and crime, she said.

“We see a continued growth in non-traditional coverages,” Charnley said.

Chris Lay, London-based president, Marsh captive solutions, said the brokerage is seeing “a lot of activity tailoring captive programs to address cyber risks.”

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In addition to evolving cyber risks and terrorism, other top risks being addressed by captives were catastrophic earth/weather events, economic downturn and political unrest, Lay said.

The top industry sectors that form captives remain financial institutions; health care; auto/manufacturing; retail/wholesale; and communications, media and technology.

However, Charnley noted, if premium dollars were used to rank the industries, communications, media and technology companies would probably rank second, below financial institutions.

Top-ranked unique or emerging industries forming captives were construction; energy; real estate; education; and sports, entertainment and events, she said.

For construction, the increased number is probably the result of improved economic conditions, she said.

For education, it’s more likely the reason is to seek access to reinsurance programs, said Art Koritzinsky, managing director, captive solutions, in New York.

He said Marsh expects to see continued growth in the number of 831(b) small captives, which have increased by 35 percent.

“That’s where a lot of the growth [in the captive market] is,” Koritzinsky said.

In December, the IRS rules regulating 831(b) captives increased the limit on direct premium from $1.2 million to $2.2 million and removed the ability of such captives to be used for estate planning, among other changes.

As for predictions, Marsh anticipates increased growth of captives for international employee benefits; terrorism, small captives; non-traditional risk; and in emerging markets such as Latin America and Asia Pacific.

They also anticipate companies beginning to use cash surpluses in captives for sophisticated investment strategies.

Marsh manages about 1,250 captives worldwide, with about $42 billion in premium. About 1,000 captive owners participated in the benchmark survey. Final results will be released in May.

Anne Freedman is managing editor of Risk & Insurance. She can be reached at [email protected]
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Sponsored: Liberty Mutual Insurance

Commercial Auto Warning: Emerging Frequency and Severity Trends Threaten Policyholders

Commercial auto policyholders should consider utilizing a consultative approach and tools to better manage their transportation exposures.
By: | June 1, 2016 • 6 min read

The slow but steady climb out of the Great Recession means businesses can finally transition out of survival mode and set their sights on growth and expansion.

The construction, retail and energy sectors in particular are enjoying an influx of business — but getting back on their feet doesn’t come free of challenges.

Increasingly, expensive commercial auto losses hamper the upward trend. From 2012 to 2015, auto loss costs increased a cumulative 20 percent, according to the Insurance Services Office.

“Since the recession ended, commercial auto losses have challenged businesses trying to grow,” said David Blessing, SVP and Chief Underwriting Officer for National Insurance Casualty at Liberty Mutual Insurance. “As the economy improves and businesses expand, it means there are more vehicles on the road covering more miles. That is pushing up the frequency of auto accidents.”

For companies with transportation exposure, costly auto losses can hinder continued growth. Buyers who partner closely with their insurance brokers and carriers to understand these risks – and the consultative support and tools available to manage them – are better positioned to protect their employees, fleets, and businesses.

Liberty Mutual’s David Blessing discusses key challenges in the commercial auto market.

LM_SponsoredContent“Since the recession ended, commercial auto losses have challenged businesses trying to grow. As the economy improves and businesses expand, it means there are more vehicles on the road covering more miles. That is pushing up the frequency of auto accidents.”
–David Blessing, SVP and Chief Underwriting Officer for National Insurance Casualty, Liberty Mutual Insurance

More Accidents, More Dollars

Rising claims costs typically stem from either increased frequency or severity — but in the case of commercial auto, it’s both. This presents risk managers with the unique challenge of blunting a double-edged sword.

Cumulative miles driven in February, 2016, were up 5.6 percent compared to February, 2015, Blessing said. Unfortunately, inexperienced drivers are at the helm for a good portion of those miles.

A severe shortage of experienced commercial drivers — nearing 50,000 by the end of 2015, according to the American Trucking Association — means a limited pool to choose from. Drivers completing unfamiliar routes or lacking practice behind the wheel translate into more accidents, but companies facing intense competition for experienced drivers with good driving records may be tempted to let risk management best practices slip, like proper driver screening and training.

Distracted driving, whether it’s as a result of using a phone, eating, or reading directions, is another factor contributing to the number of accidents on the road. Recent findings from the National Safety Council indicate that as much as 27% of crashes involved drivers talking or texting on cell phones.

The factors driving increased frequency in the commercial auto market.

In addition to increased frequency, a variety of other factors are driving up claim severity, resulting in higher payments for both bodily injury and property damage.

Treating those injured in a commercial auto accident is more expensive than ever as medical costs rise at a faster rate than the overall Consumer Price Index.

“Medical inflation continues to go up by about three percent, whereas the core CPI is closer to two percent,” Blessing said.

Changing physical medicine fee schedules in some states also drive up commercial auto claim costs. California, for example, increased the cost of physical medicine by 38 percent over the past two years and will increase it by a total of 64 percent by the end of 2017.

And then there is the cost of repairing and replacing damaged vehicles.

“There are a lot of new vehicles on the road, and those cost more to repair and replace,” Blessing said. “In the last few years, heavy truck sales have increased at double digit rates — 15 percent in 2014, followed by an additional 11 percent in 2015.”

The impact is seen in the industry-wide combined ratio for commercial auto coverage, which per Conning, increased from 103 in 2014 to 105 for 2015, and is forecast to grow to nearly 110 by 2018.

None of these trends show signs of slowing or reversing, especially as the advent of driverless technology introduces its own risks and makes new vehicles all the more valuable. Now is the time to reign in auto exposure, before the cost of claims balloons even further.

The factors driving up commercial auto claims severity.

Data Opens Window to Driver Behavior

To better manage the total cost of commercial auto insurance, Blessing believes risk management should focus on the driver, not just the vehicle. In this journey, fleet telematics data plays a key role, unlocking insight on the driver behavior that contributes to accidents.

“Roughly half of large fleets have telematics built into their trucks,” Blessing said. “Traditionally, they are used to improve business performance by managing maintenance and routing to better control fuel costs. But we see opportunity there to improve driver performance, and so do risk managers.”

Liberty Mutual’s Managing Vital Driver Performance tool helps clients parse through data provided by telematics vendors and apply it toward cultivating safer driving habits.

“Risk managers can get overwhelmed with all of the data coming out of telematics. They may not know how to set the right parameters, or they get too many alerts from the provider,” Blessing said.

“We can help take that data and turn it into a concrete plan of action the customer can use to build a better risk management program by monitoring driver behavior, identifying the root causes of poor driving performance and developing training and other approaches to improve performance.”

Actions risk managers can take to better manage commercial auto frequency and severity trends.

Rather than focusing on the vehicle, the Managing Vital Driver Performance tool focuses on the driver, looking for indicators of aggressive driving that may lead to accidents, such as speeding, sharp turns and hard or sudden braking.

The tool helps a risk manager see if drivers consistently exhibit any of these behaviors, and take actions to improve driving performance before an accident happens. Liberty’s risk control consultants can also interview drivers to drill deeper into the data and find out what causes those behaviors in the first place.

Sometimes patterns of unsafe driving reveal issues at the management level.

“Our behavior-based program is also for supervisors and managers, not just drivers,” Blessing said. “This is where we help them set the tone and expectations with their drivers.”

For example, if data analysis and interviews reveal that fatigue factors into poor driving performance, management can identify ways to address that fatigue, including changing assigned work levels and requirements.  Are drivers expected to make too many deliveries in a single shift, or are they required to interact with dispatch while driving?

“Management support of safety is so important, and work levels and expectations should be realistic,” Blessing said.

A Consultative Approach

In addition to its Managing Vital Driver Performance tool, Liberty’s team of risk control consultants helps commercial auto policyholders establish screening criteria for new drivers, creating a “driver scorecard” to reflect a potential new hire’s driving record, any Motor Vehicle Reports, years of experience, and familiarity with the type of vehicle that a company uses.

“Our whole approach is consultative,” Blessing said. “We probe and listen and try to understand a client’s strengths and challenges, and then make recommendations to help them establish the best practices they need.”

“With our approach and tools, we do something no one else in the industry does, which is perform the root cause analysis to help prevent accidents, better protecting a commercial auto policyholder’s employees and bottom line.”

To learn more, visit https://business.libertymutualgroup.com/business-insurance/coverages/commercial-auto-insurance-policy.

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This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Liberty Mutual Insurance. The editorial staff of Risk & Insurance had no role in its preparation.


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Liberty Mutual Insurance offers a wide range of insurance products and services, including general liability, property, commercial automobile, excess casualty, workers compensation and group benefits.
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