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Is Excess Insurance the Right Product for Your Client?

August 26, 2020

Click play to listen to Synergy's latest audiocast featuring Excess workers' compensation products. A few product advantages that are further explained in the audiocast include:

  • Low Self-Insured Retention (SIR)
  • Expansive range of eligible classes including schools, manufacturing, municipalities, retail, transportation, construction, and temporary services
  • Optional claims management

 

Transcript

Joanna: Hi everyone, this is Joanna with Synergy Coverage Solutions and today I am joined by Ken Gesner to talk about Excess insurance coverage. Ken has been in the insurance industry for over 30 years and is here to share everything you need to know about Excess insurance. Thanks for joining me today, Ken, let’s get started! Can you briefly summarize what an Excess insurance policy does?

Ken: Excess insurance is a policy purchased by a company who is self-insured that provides a layer of protection above the policy’s attachment point. That layer can be several million dollars, that layer can offer coverage all the way through to the statutory limits in a given State, so it is important to understand how those limits are provided in the coverage. Also, the Excess policy’s endorsements can change the coverage under the policy as well. Many of the endorsements can limit coverage or expand coverage in some fairly important areas.

Joanna: Okay, can you describe the ideal employer for a self-insured program?

Ken: The ideal Insured, and I don’t know if I can say there is an ideal insured, but the first thing is for someone to really be considered for self-insurance, they’ve got to be able to qualify in the State in which they wish to be self-insured. So, it is critical that they can meet that requirement, and those do vary by state.

They also have to have the appetite to take on risk and the financial ability to bear risk.

Third, they need to demonstrate the ability to control their losses through strong commitment to Risk Management, safety programs, and typically have a history of low losses for these programs to make financial sense.

Four, typically employers who may be interested in self-insurance are currently in Large Deductibles or involved in Captive programs because they’re used to bearing risk already, and self-insurance is simply the next step of an insurance program as companies grow.

Joanna: Okay, and what are some the benefits of being self-insured?

Ken: Well, organizations that are self-insured do not have to collateralize the retained loss exposure as they would with a large deductible or mega deductible type program. Collateral will accumulate in these programs over the first two, three, maybe even four years that the policy is in force. So, you may start out with a million dollars in collateral with a carrier and after three - four years, they may be holding three or four million dollars. Self-insurance removes this financial burden because the insurance carrier doesn’t have to hold assets to cover the expected future claim payments.

Since the carrier is not holding these additional funds, it allows the Insured, each year, to evaluate individual carriers’ policy offerings without concerning themselves with prior collateral requirements or future collateral requirements of a new carrier that they would want to move to. The State is the only one potentially holding collateral; therefore, they can move their coverage much more easily year-over-year.

With self-insurance, the insurance costs are lower than on a Large Deductible because the carrier is only charging premiums for the exposure above the attachment point, and this can significantly affect cost. Additionally, with a Large Deductible program, the insurance carrier pays the claims, then bills the Insured for the cost of the claim up to the deductible limit, and is obligated to pay the entire claim cost, regardless of the Insured’s ability to pay the agreed upon deductible. Whereas with an Excess policy, the insurance company just isn’t obligated to pay anything below the attachment point, and this is a significant difference in the exposure to the carrier, therefore affecting premium costs.

Joanna: Okay, so can any Employer become self-insured?

Ken: Not in most cases. Employers who want to consider being self-insured must apply to the given State for approval. The applications vary by State but typically are evaluated on the financial strength of the company and the amount of claims exposure the company is looking to retain. There are exceptions though, for example, public or governmental entities typically can just select to be self-insured and don’t have to be approved for their financial strength.

Joanna: Can you tell me a little bit more about that process of becoming a self-insured?

Ken: Yes, there are some consistencies with all States in this process. One is, in all States’ cases, you have to put through an application. The States are typically going to want financials on the company, some form of actuarial analysis of historical losses to help predict future losses, and they are going to want to know what the limits are that the Insured is looking to retain to make sure that their financial strength is adequate in the eyes of the State to bear those liabilities. And, once you go through that process, and as a part of what is required in many States is either a copy of your Excess coverage or at least documenting the amount of risk you intend to retain. Once approved, then an Insured has to retain a TPA to manage and help handle their claims in most cases, and purchase Excess coverage.

Joanna: What are the next steps for an employer that wants to get started on this approval process?

Ken: We can provide our agents and their clients information regarding State statutes and State applications if they would like to consider becoming self-insured. The Employer’s Broker can usually help with the process.

In most States there is a Self-Insured Association that can also be a resource to the Employer who can consider self-insurance.

Joanna: Why would an Employer choose Synergy for an Excess Insurance product?

Ken: Synergy truly customizes the Excess policy for the Employer. Every employer has different appetites for risk and has different experiences as far as frequency and severity of claims in their loss history. Therefore, we can create a program with an attachment point that fits the need of the individual employer. Most carriers only offer very large attachment points but Synergy understands that sometimes it makes sense to have a lower attachment point and we are willing to go lower than most carriers. Additionally, we work with the Employer so that each year, the attachment point can be adjusted based on the Employer’s need and market conditions.

Joanna: What is the attachment point range when talking about Excess Insurance?

Ken: Synergy is very flexible when it comes to the range of the attachment points. Through analysis of the Employer’s history of losses and risk appetite we can offer a number that makes the Employer comfortable. We have written policies with attachment points as low as $100,000 but have considered and quoted at even lower attachment points. The sky is the limit on how high our attachment points can go.

Joanna: Who handles the claims for an Employer who is self insured?

Ken: Well typically, that is up to the Employer. In the world of self-insurance, that can be handled by a Third Party TPA or Administrator, it can be handled by the Employer themselves – many Employers who are self-insured are fairly sophisticated Risk Managers so sometimes they will have their own departments internally with licensed Claims Adjusters to handle the claims.

Joanna: Why is it better for Synergy to handle the claims?

Ken: Synergy Insurance Company offers a variety of risk sharing policy options, including Large Deductibles, Retro programs, as well as Excess policies. We also work with Captive programs, and we tend to be very proactive on our claims management. Typically, TPAs are very passive in their claims handling for an Employer, simply because they really don’t have any skin in the game and don’t typically bring a lot of management of the claim to the table. They are more of a processor. With Synergy, we would get involved in the claims and have more discussions typically with the client company. We bring advice to the table, we sometimes will bring attorneys in to the discussion, even, of a sophisticated situation or a claim that’s more involved than a typical indemnity or medical-only type claim. With Synergy, we actually offer, when it comes to Excess policies, we offer what we call Bundled or Unbundled versions. We can offer Excess policies where we simply are providing the insurance on the Excess policy, but we also offer Bundled options where we are providing Claims management and also Risk Management, and those can be done, quite honestly, a la carte as well.

Joanna: What about Loss Prevention? Are these services available to a self-insured that purchases an Excess product?

Ken: As I stated earlier, we do offer a Bundled option when it comes to Excess policies. Now the contracts are separate – we have a TPA type of agreement, but as a part of that we can offer Risk Management services. By offering a bundled option, it makes it more convenient for Insureds who are just starting into self-insurance to put their program together. It offers something that looks a little bit more like a Deductible program for the Insured, where we can still offer Claims Management and Risk Management as they start down the path of becoming more engaged in the insurance program. Synergy Risk Management can help Employers’ Human Resources departments implement more stringent hiring practices, which can help keep the Employer from making an ill-advised hire. We can also help Employers set up Safety Committees, put together documentation for the review of a loss and how to mitigate the exposure to reduce the chance of a loss occurring again or reduce the severity of a given claim situation. There are other areas Synergy helps as well, but these are just to name a few that we more typically get involved in.

Joanna: Can you share a success story from an employer who chose an Excess policy and how it affected their workers comp program and premium costs?

Ken: Yes, we recently worked on a temporary staffing company that was already self-insured through a major national reinsurer. The reinsurer had their attachment point at $1,000,000, which is a higher level of exposure than the Insured really wanted to take. The renewal premium offered by the incumbent carrier was around $200,000, again with the same attachment point the prior year at $1,000,000. We took a look at the account, had discussions with their Risk Management team and their owner, and determined that they really had some very good programs in place - their loss history was really solid, they had no claims that really approached anywhere near the attachment point, and so we came back and offered them an attachment point that they were much more comfortable with at $750,000 and we were able to lower their premium at the same time to approximately $150,000. So, because we took a look at their Risk Management – their Risk Management was so solid, we didn’t have any difficulty bringing their attachment point down to a more comfortable level and at the same time, reducing their premium costs.

Joanna: Thank you for your time today, Ken. If you are interested in learning more about Excess insurance or have any questions about the product, please send us an email at info@synergyinsurance.net or give us a call at 704-927-2860. Thanks for listening!