https://completemarkets.com/Article/article-post/2254/ALTERNATIVE-RISK-FINANCING-NOT-JUST-FOR-FORTUNE-500-COMPANIES/
Alternative Risk Financing: Not Just For Fortune 500 Companiesr>ALTERNATIVE RISK FINANCING: NOT JUST FOR FORTUNE 500 COMPANIES by Greg Ryan and James Bukowski Grow revenues and earnings by offering alternative risk financing to selected clients. Large corporations and government agencies generally use some type of alternative risk financing for their property and liability loss exposures. Medium-sized and smaller companies usually buy Commercial insurance for this purpose. However, alternative risk financing is not just for Fortune 500 companies. Many other firms can enjoy some of its benefits, such as improved cash flow and a lower total cost of risk. This article offers s a basic overview of risk financing concepts for medium-sized firms (generally, those with fewer than 1,000 employees). After surveying the principal types of risk financing alternatives, we’ll outline the decision-making process and components for implementing such a program. The article will use these definitions: Risk financing: The use of insurance and other techniques to pay for loss obligations. Alternative risk financing: The self-assumption of risk, combined with insurance, to finance a company’s property and liability losses; a formal program for managing and paying for an organization’s losses, usually for a defined period. COMPANY SIZE The first question owners and managers of medium-sized firms ask is “How large must my business be to use alternative risk financing?” Size isn’t very important. The main criterion is losses. As a rule of thumb, alternative risk financing requires approximately $500,000 in annual incurred losses in one line of insurance — for example, Auto, General Liability, or Workers Compensation. Losses in this line should be reasonably predictable, and the firm should be reasonably able to accept risk. Internal management discipline and a willingness to commit the appropriate resources are also required. The losses should have these characteristics: Reasonably predictable Not extremely volatile Not exposed to a catastrophic loss High frequency and low severity “High frequency and low severity” means that the number of losses should be at least several dozen per year, of which most are less than $50,000. As a case in point, a large hotel would probably experience many small Workers Compensation claims but relatively few, if any, large claims. A bank can also expect to have numerous low severity Comp claims. Alternative risk financing usually involves loss severity — the exposure to large losses — by purchasing excess insurance or reinsurance. INSURANCE LINES The other question asked most often is “What lines of insurance are best for alternative risk financing?” Casualty lines — Workers Compensation, General Liability (including Products), and Auto Liability — are the best candidates for alternative risk financing. Workers Comp and Liability claims tend to be paid over long time frames, one to five years or more. Insurers of these lines generate substantial investment income on their reserves until losses are fully paid. Mid-size companies using alternative risk financing can earn the investment income on reserves that was formerly earned by an insurance company. ALTERNATIVE RISK FINANCING OPTIONS Insurers have developed many colorful titles for what amounts to a handful of alternative risk financing techniques. Methods range from guaranteed cost (for risk-averse firms) to self-insurance and captive insurance (for firms seeking the ultimate in control over the risk management and financing process). These techniques include: Guaranteed cost Retrospective rating Large deductible Self-insurance Captive insurance This chart summarizes the main features of these alternatives: Analysis of Key Risk Financing Alternatives Rating Scale 1-5: 1 = least favorable; 5 = most favorable Guaranteed Cost Retro/Rating Large-Deductible Self-Insurance Fronted Cost ...sis of costs and losses, including insurance market pricing. Companies willing to commit the necessary resources will probably enjoy improved cash flow and cost savings. The extent of improvement and the degree of control over the risk management process will vary, depending on the firm’s internal management practices and organizational suitability. Reproduced with permission from riskVue, a free monthly online magazine for risk and insurance professionals.
https://completemarkets.com/Article/article-post/473/The-State-Of-Risk-Management-Education/
The State Of Risk-Management Educationr>
Professional designations are conferred by a professional body that has specific entry requirements, such as a code of ethics, a set of practice standards, educational objectives, and industry experience and involvement.
Here are some current risk-management educational programs:
ASSOCIATE IN RISK MANAGEMENT (ARM)
Behind the Program: Insurance Institute of America (also offers up to 20 other insurance associate designations and the CPCU)
Prerequisites: None
Program Format and Exam: Self-study or 14-week preparation courses. Examinations are administered nationally three times per year. Beginning in December 2000, ARM students will be able to take computer-based exams any time, at locations that have yet to be determined.
Subjects Program Covers:
Essentials of risk management
Essentials of risk control
Essentials of risk financing
Continuing Education Requirements: None
Cost to Complete Program:
Books: $125 per course
Exams: $96 each
Classes: Locally sponsored classes average around $290 each
Total: Self-study-up... Up to $3,300 (not including books)
Program Director: Amy Geffen
Web Site: www.rims.org
E-mail: Send E-mail to Amy Geffen
CHARTERED PROPERTY AND CASUALTY UNDERWRITER (CPCU)
Behind the Program: The American Institute for Chartered Property Casualty Underwriters (AICPCU)
Prerequisites: Three years of experience in the insurance industry
Program Format and Exam: Self-study or classes. Exams are given three times per year in centers across the country.
Subjects Program Covers:
Ethics
Insurance perspectives and insurance contract analysis
Personal insurance and risk management
Commercial Property insurance
Commercial Liability insurance
Insurance operations
Legal environment of insurance management
Accounting and finance
Economics
Related studies
Continuing Education Requirements: Not required, although it's available
Cost to Complete Program:
Exams: $119 each
Books: Up to $1,000 total materials
Classes: $320 per class
Total: Self-study-up to $2,200; with classes-up to $5,100
More Information: Visit www.aicpcu.org or contact George Head
FINANCIAL RISK MANAGER (FRM)
Behind the Program: Global Association of Risk Professionals, an international not-for-profit organization in financial risk management
Prerequisites: Minimum of two years of experience in financial risk management or related field. Must be an active member of GARP.
Program Format and Exam: Self-study. GARP offers a study guide and a review course that's available only in New York, London and Japan. The course takes place over a one-month period leading up to the exam.
Subjects Program Covers:
Quantitative analysis
Capital markets
Market risk management
Credit risk management
Operational and integrated risk management
Legal, accounting, and tax risk management
Regulation and compliance
Continuing Education Requirements: None. Must pay GARP annual membership fees
Cost to Complete Program:
Examination fees: $300
Required books: $500
Prep classes: $750
Total: Self-study -- $800; with review course -- $1,550
More Information: Visit www.garp.com
RISK MANAGEMENT FOR PUBLIC ENTITIES (RMPE)
Behind the Program: Public Risk Management Association and the Center for the Advancement of Risk Management Education (CARME), a division of IIA
Prerequisites: None
Program Format and Exam: Self-study. Order the RMPE textbook and course guide, study them, and take the exam. You must register for the exam and select someone to administer it and return it to CARME to be graded.
Subjects Program Covers:
Risk management from a public entity perspective
Public entity exposure identification and analysis
Risk control
Claim and litigation management
Risk-financing resources
Pooling for public entity risk financing
Continuing Education Requirements: None
Cost to Complete Program:
Textbook, course guide, and exam fee all-inclusive
Total: $145
More Information: Visit www.aicpcu.org or contact George Head
Adapted from riskVue, the free monthly online magazine for risk-management and insurance professionals. See the lastest edition of riskVue at www.griffincom.com/riskVue/riskVue.htm.
Volume 20, Issue 8 of The Risk Management Letter discusses and analyzes these risk-management educational programs. To order an issue reprint, call (949) 752-1058.
RML Interactive, the online supplement to The Risk Management Letter, has links to interviews with program directors, conversations with students and instructors, and additional program information.
https://completemarkets.com/Article/article-post/793/Understanding-And-Using-The-Services-Of-Program-Administrators/
Understanding And Using The Services Of Program Administratorsr>
In the last decade, you may have heard the term 'program manager' or 'program administrator' being used frequently. They're often used interchangeably. This article will use 'program administrators,' or 'PAs.'
A PA is a specialist in underwriting a particular industry or form of coverage on behalf of an insurance company or companies. Rarely do PAs administer claims, since their primary purpose is to administer, underwrite, rate, and market their product. Some PAs sell directly to the customer, but most generate sales through the insurance agency system.
A true specialty insurance program has unique characteristics that distinguish it from a standard insurance submission-say, the underwriting of a specialty class of business requiring expertise in exposure analysis, or rates and forms that deviate from normal terms and conditions to satisfy the customer's insurance needs. One often hears of a specialty program formed for restaurants, taverns, or certain construction trades, but I don't consider these specialty programs because an abundance of standard and nonstandard insurance companies will compete for this business with standard forms and rating criteria.
In a genuine specialty program, only a limited number of insurance companies have:
The understanding or desire to compete for the class of business
The rates or forms necessary to rate or insure the exposures properly
Individual reinsurance treaties in place to give the primary carrier the flexibility and capacity necessary to insure the underwritten class
Keep in mind that standard reinsurance treaties, like standard ISO forms, exclude certain Liability and Property exposures, which in turn restrict the underwriter's ability to compete for many classes of business.
For the most part, a program offers multiple-line coverages to their prospective clients. Exceptions include Professional Liability, Pollution Liability, Errors & Omissions, Directors & Officers, and Products Liability policies. PAs have even progressed to the point of employing loss-control representatives who have the expertise to specialize in the underwritten class.
My firm underwrites the outdoor recreation industry, including such business as resorts, dude ranches, outfitters and guides, trap and skeet clubs, hunting and fishing lodges, hunting leases, snowmobile tours, RV parks, and campgrounds. The program offers a full compliment of package policy forms: Auto, Workers Compensation, Marine, and Umbrella Liability. The program is admitted in the United States; we have a separate division that underwrites Canada. Our insurer is Gulf Insurance Group, an A+9 rated company and part of the Travelers Property & Casualty Cos. Our insurance provider for Workers Compensation is the Legion Insurance Co., which is A8 rated.
We contract with independent insurance agents throughout the country to represent our products and commit to the marketing and sale of the program. We appoint agents based on their reputation within the insurance community and their proximity to the type of business being produced. Since many specialty programs have a limited prospect base, it's important that appointed agents be spread out geographically so that they aren't competing with each other for the same program. Loss-control and safety manuals address certain aspects of the insured's guest activities: equine, marine, shooting sports, and so on. This is provided by a team of seven loss-control specialists, all retired USMC officers.
More insurance companies are turning to PAs to underwrite and market their specialty programs. Insurance companies are focusing on specialty classes of busin...ss and to seek out PAs to help find a market for them. A good PA will have a databank of prospects that meet their underwriting definition, and will generally share this information with his or her insurance agents. Usually brochures and mailing pieces are available from the PA. Many PAs will enter into cooperative advertising ventures. The agent should ask the PA for an exclusive or semi-exclusive territory in return for a commitment to market the program aggressively.
Because of the specialty nature of the product, the number of accounts available within a specific state or region is often limited. A form of exclusivity will benefit the agent and the PA. Agents that are successful in developing an exclusive or semi-exclusive contract will undoubtedly have few competitors to deal with. When a good product is available to a niche consumer, the agent will capitalize on word-of-mouth referrals to establish the agency as an expert in the business.
In your sales strategy, make certain you understand what information the PA will require (including specialty applications) to underwrite and compete for the business properly. PAs will attend conventions and generally ask their agents to man the booths with them. Sharing association endorsements with the producer is another way to share in a marketing effort. And, unlike the wholesale or Excess & Surplus Lines facilities, PAs pay more commission to the producer. Before devoting time and energy to a program, the producer should ask the PA what his or her renewal retention has been for the past three years. A stable and profitable program will have a renewal ratio of around 90%.
There are many ways of finding a PA. Most programs are listed in periodicals such as Rough Notes and the Crittendon Report, and most advertise in trade journals. Talk to the marketing representatives of your standard insurance companies. In our program, Travelers marketing and underwriting personnel are familiar with the specialty products offered by the Gulf Insurance Group. The use of PAs will add to the profits and retention of your business.
https://completemarkets.com/Article/article-post/69/Finding-Markets-The-Specialty-Program-Consultant/
Finding Markets: The Specialty Program Consultantr>While a reinsurance intermediary operates between the ceding insurance company and the reinsurance company market, the specialty insurance program consultant operates between insurance agents and the insurance company. This document by Andrew Barile introduces you to this emerging type of consultant.
Program brokers, marketing insurance consultants, and specialty insurance program consultants have all existed for a number of years. They perform a valuable service for an agent, and should be part of the agent's cadre of experts, together with lawyers and public accountants. Without a suitable insurance company market the agent can't exist. Insurance company market finders perform a unique service that agency staff members can't always perform on their own.
The first question agency owners ask is 'Why should I pay a consultant for a service that I, the owner of the agency, should be able to perform myself?' Certainly visiting with insurance company markets is an owner's function. However, agency owners should quantify their time spent on an hourly basis. How much time do they really want to spend developing new company markets?
Some consultants have adapted a formal approach to representing insurance agencies by using an 'engagement agreement,' or a 'consulting services agreement' which outlines the specific services that the consultant will perform, and the cost of these services. After providing agencies with this service for more than 25 years, I've noticed that each engagement agreement is different.
Consultant's fees vary from a single flat fee to a specific percentage of premium volume. Some engagement agreements have a fixed time frame. Others run as long as an agency contract between the parties (agency and insurance company) is in force.
FINDING A CONSULTANT
In the past many agents used a reinsurance intermediary to place them with an insurance company. Now with more stringent regulations for reinsurance intermediaries, they should not perform this type of service.
Use reinsurance intermediaries to structure the appropriate reinsurance program behind the company making the agency ...ent-clients in-depth knowledge to accelerate their learning curve in all of these product lines.
Many agents recognize that their future lies in developing specialty products that they can sell to groups of insureds and their associations. A comprehensive package can go a long way toward keeping clients for the agency regardless of the underwriting cycle.
CONCLUSION
The services of the specialty insurance program consultant don't end with the consummation of the agency contract. The challenge comes from listening to agents describe new products that require a specialty market. Agents are beginning to recognize that together with legal and accounting services, they can purchase company marketing services. The future looks bright for the specialty insurance program consultant who has a successful track record of agency-company accomplishment.
https://completemarkets.com/Article/article-post/71/Discovering-New-Niche-Programs-In-Commercial-Lines/
Discovering New Niche Programs In Commercial Linesr>Niche programs in Commercial Lines are an outgrowth of the Property/Casualty insurance industry's efforts to tailor insurance products for designated insureds.
Some examples are accountants' Errors & Omissions (E&O) Liability, Tax Preparers' E&O, and programs for public libraries, ambulance companies, homes and services for the aging, auto repairs, contractors, car washes, boards of education, credit unions, contractors who install water-based sprinkler systems, law firms, school bus operations, and loggers.
New niche programs in Commercial Lines are created in response to legal events, as opposed to regulation (e.g., Prop. 103). A case in point: The July 1995 California Supreme Court opinion of Montrose Chemical Corp. v. Admiral Insurance Co. caused contractors' defect claims to be covered, even though they had not been covered previously. From an underwriting perspective, many carriers and their reinsurers said, 'We don't write contractors in California because of the Montrose decision.' Others, however, saw an opportunity to design a General Liability insurance product for California residential contractors that build condos or tract houses.
As an agent, you must be aware of opportunities in the marketplace. The best way to discover new niche programs in Commercial Lines is to pay attention to 'market voids.' Listen for consistent exclusions by all carriers. The new niche program is created by changing the language of the po...of 15%, with an additional commission for meeting higher premium volume levels for the niche programs. Since the niche product has strict guidelines, sales are of paramount importance, and rewards are tied directly to premium production. The more business your retail agency writes within the niche guidelines, the more commission it will receive.
In trying to find new niche programs in Commercial Lines, pay attention to the establishment of new professions. A recent example is the creation of a new association for the personal chef. More than 7,000 personal chefs are now working in the United States, with most in California. What is a personal chef? How should the Professional Liability be structured for the personal chef? How do you price the expense? What have been the losses in this profession? A new profession is a new opportunity. Most professional chefs don't realize it, but they're going to need insurance. Isolate the expense-to-risk ratio for this new profession. Solicit the association for a Group program.
An abundance of opportunities exists for new niche programs in Commercial Lines insurance. It's up to your agency to find them!
https://completemarkets.com/Article/article-post/1632/MANAGING-RISK-A-GUIDE-FOR-YOUR-BUSINESS-CLIENT-PART-3-OF-4/
Managing Risk: A Guide For Your Business Client, Part 3 Of 4r> MANAGING RISK: A GUIDE FOR YOUR BUSINESS CLIENT Part 3 of 4 RISK RETENTION Everyone retains risk. Most car owners have a collision deductible of at least $100. Owners of $200 watches rarely insure them. Large organizations have correspondingly higher retention of risk. It isn't a question of whether risk is retained, but how much risk is retained and under what conditions. Many phrases are used in risk management, and meanings vary with the context and speaker. For our purposes, definitions are as follows: Loss assumption. Pl... is TLO (total loss only). Funding Versus Expensing If risk is retained to a substantial level, it may seem desirable to establish a reserve fund to ensure availability of cash when the need arises. Public entities and other tax-exempt organizations often do this, sometimes combining this reserve with other contingency reserves. CONCLUSION Retention of risk is the natural method of treatment, with insurance used principally where losses exceed a tolerable loss level (TLL). The chief financial officer, after considering all internal financial and external conditions, should establish the TLL, after which insurance or other risk transfer should be specified for risks in excess of this amount and retention for lower risks.
https://completemarkets.com/Article/article-post/1856/HOW-MUCH-CAN-YOU-RELY-ON-YOUR-CONSULTANTS-LAWYER/
How Much Can You Rely On Your Consultant's Lawyer?r>HOW MUCH CAN YOU RELY ON YOUR CONSULTANT'S LAWYER? by Gary Lawson, JD, LLM, Bruce Campbell, JD, and Gavin Kahn, Esq. A common practice in business today is for companies to focus on the core of their businesses while hiring third parties or consultants to handle many ancillary activities. For example, businesses that do not specialize in investing hire third parties to make investment decisions for them. Still other companies hire consultants to assume the liability for risky activities. An example of an attempt to shift risk to consultants can be seen in the direct marketing business. Frequently, the direct marketing company ('the Company') relies upon consulting firms to review, if not structure, a variety of marketing programs and promotions. It is common for the direct marketing consultant to obtain a legal opinion from a law firm that is chosen by the consultant. The..._______________________ ADDRESS YOUR FAX TO THE RISK MANAGEMENT LETTER at (714) 955-1929. Special trial subscription not available to existing or previous RML subscribers.
https://completemarkets.com/Article/article-post/620/The-Facts-Of-Life-About-Personal-Lines-And-Having-A-Well-Trained-Staff/
The Facts Of Life About Personal Lines - And Having A Well-Trained Staffr>
Now more than ever, the generation of Personal Lines as a viable part of your agency will be dependent on three things:
a variety of markets in the mid-price range or below
the ability of your staff to sell and close
the knowledge base of your staff and how they manage customers on the telephone
Once upon a time, insurance buyers who wanted Auto and Homeowners insurance found it necessary to visit their insurance agents (or be visited by them in their homes) to protect their property and liability properly. Once upon a time, you had to visit a travel agency to arrange for a vacation. Once upon a time, the airlines had local offices to permit travelers to purchase, pay for, and pick up tickets.
The days of visiting airlines, travel agents, or insurance agencies are fast disappearing. Why? Airline tickets, vacation packages and Personal insurance have become commodities, available in similar fashion from many vendors. Does that mean that Personal Lines agencies will soon be defunct?
Maybe, but not necessarily.
Where people will get their insurance will depend on how easy it is for them to get the desired services. If you can make the quoting and purchase of Auto or Homeowners insurance as easy as getting reservations and tickets on an airline, your agency will succeed. If not, you will lose market share to those who make buying insurance as easy as possible.
I can get airline tickets by phone as easily from my travel agent as I can from the airline. And my travel agent guarantees the lowest available rate. The best will even monitor the rate until flight time to determine if a lower rate becomes available. I will certainly continue to use my travel agent because, unlike the airline itself, he can check on all airlines and represents my interest as much as he does that of the airline. I could use the Internet-but frankly, it's too much trouble, and my travel agent can do it faster and more efficiently. It's his business, not mine.
Vacation packages are complex and changing. Yet they too have become commodities. I use travel agents for this purpose, as well, because I assume they have access to all of the most recent vacation programs, while I would struggle to find them online.
Insurance agency operations are similar to both the ticket agent and the vacation planner. Insurance can be as simple as a competitive quote or as complex as designing a program to fit my special needs. The decision regarding what I need is mine (not the insurance agent's). The faster the agents can understand this, the faster they will write my insurance. Yes, I may need more or different coverage. I may even have been told that before and had forgotten (or disregarded the fact due to the extra cost). But I neither need nor want a lecture from another agent about things that I should insure. All I want is a comparative quote with as little pain as possible. If I want more, your prompting questions will open the way for me to ask. That's how tailored insurance programs can mature.
Here are issues that will determine if you will survive the next 10 years in the Personal Lines business:
Insurance companies are struggling to advance their automated systems for quoting and for policy generation. Agencies are also struggling to gain efficiencies in the handling of their Personal Lines. As we all know, the outcome of our efforts in this area leave a great deal to be desired. The industry (carriers and automation vendors) have not made it easy to rate and update policies over different systems through a single, integrated program. The rating vendors, sometime owned by insurance companies or automation vendors, are complex and time consuming to use and understand. Although progress is being made (and some of these problems are out of the individual agent's control), the survivors are becoming much more proficient and proactive in their automation efforts. For instance, some agencies are 'live-testing' a variety of rating vendors each year to determine which are easiest to use. The employees, not the owners, decide the ease of use. The employees...s (does the employee manage the client properly?).
Technical Skills. Qualified Agency Consulting Group, Inc. staff determine whether the employee understands the coverages of basic-needs clients and the more complex accounts. This education process aids the agency in its E&O defense.
Sales Skills. We will provide a number of challenges and objections to overcome, and critically analyze the employee's ability to ask for and close the sale.
Telephone Skills. We will closely monitor the employee's telephone attitude and demeanor as the call progresses. We'll measure and report the telephone strengths and weaknesses encountered to permit the agency to institute further training as necessary.
Costs: Quarterly calls with reports to the agency owner will cost $500 per year (prepaid). If multiple calls are desired (to test multiple or specific employees), the costs increase accordingly. If the agency owner prefers to administer the tests locally, Agency Consulting Group, Inc. will provide the screening tool used by us in our standard evaluation for $1,000 (unlimited use by the licensed agency only).
The Sales Skills Test is provided by Agency Consulting Group, Inc. as a tool to help insurance agency principals to identify skills that require further training. It's not intended to be a personnel evaluation tool and should never be used as such.
https://completemarkets.com/Article/article-post/985/ERRORS-AND-OMISSIONS-CONSIDERATIONS/
Errors And Omissions Considerationsr> ERRORS AND OMISSIONS CONSIDERATIONS by Carol Hammes The old saying 'The cobbler’s children go unshod' could apply to many insurance agencies today. Thousands of agents don’t carry any E&O insurance at all, and many more might not have the right coverage. Although they analyze risks and review policy forms to give their prospects and clients the best and most comprehensive insurance plans, they often don’t give their own situations the same type of evaluation. With the expanded responsibilities that agents have taken on, such as fee-based consultative services or providing underwriting decision-making assistance for insurance companies, comes additional professional liability exposure. The available E&O coverage has been changing dramatically, too. There’s no standard policy anymore, and having the wrong coverage can literally bankrupt a firm. If a claim isn’t covered by the policy or is in dispute, the legal costs alone ca...the people in the agency must have the freedom to sell and service insurance. If you want to be completely free of the risk of a lawsuit, you’ll need to shut your doors. If you stay in business, you take a certain amount of risk. Deciding how much risk is up to the agency principals. Set up procedures that will treat customers fairly and respect their intelligence and decision-making capabilities. Keep them informed of good news and bad in a timely manner. And meet their needs with courtesy and professionalism. A satisfied insured is less likely to call a lawyer if things don’t go their way. The late Carol Hammes, principal of the Middleton Group, was one of the Independent Agency System’s most widely respected management consultants. She will be sorely missed. Reproduced, with permission, from The Middleton Letter.
https://completemarkets.com/Article/article-post/181/Workers-Comp-Underwriting-Trends/
Workers Comp Underwriting Trendsr>
At the end of the last decade, most companies weren't focusing on changing their Workers Compensation programs. Prices had been decreasing or were flat for many years, and coverage was easy to come by. Now the Workers Compensation market is beginning to change. Risk managers will see the following underwriting trends during the next few years:
Trend 1: The market appears to be shifting. During the 1990s Workers Compensation pricing conditions were the softest that almost anyone can remember. The popularity of guaranteed cost programs exploded, and many risk managers were able to remove liabilities from their balance sheets at attractive prices. Now there are indications that the market is firming.
The National Council on Compensation Insurance (NCCI) reported an industry pure loss ratio of 71.2 % for the third quarter of 1999, compared to 59.1 % in 1997. When these statistics were announced, NCCI President and CEO Bill Schrempf stated, 'Free market competition, declining reserves, and a growing challenge to existing benefit levels across the country continue to place pressure on the market.'
Workers Compensation pricing has not yet fully responded to industry pressures. Currently both reinsurers and carriers, after reporting less-than-ideal bottom-line results, are evaluating and changing their underwriting and pricing practices.
Trend 2: Use of alternative programs is increasing. The changing market has renewed many companies' interest in taking on larger retentions rather than purchasing first-dollar Workers Compensation coverage. Large-dollar deductible programs and other alternative risk financing mechanisms will be more widely used in the early 2000s.
Perhaps a company's goal for alternative rating plans will be to find the right level of risk to retain. Previous trends in Workers Compensation pricing had sometimes fluctuated between the extremes - from standard premium plans to high excess-of-deductible layers and back to guaranteed cost. In the coming years, risk managers may find middle excess layers and moderate aggregate limits more appropriate win-win solutions that are preferable to all-or-nothing risk positions.
As organizations retain greater levels of risk, the need to manage that exposure becomes paramount. Using captive insurance subsidiaries may become more prevalent in the years ahead. In addition to potential tax benefits, captive arrangements offer substantial flexibility to meet changing risk financing needs. As a separate corporate entity, a wholly owned captive also enhances an organization's management perspective.
Trend 3: Integrated disability management programs are more common. Integrated disability management programs are being more commonly explored and used today by all sizes and types of companies. Market conditions are allowing a different perspective to finally take hold, not just with risk managers but also with CFOs and benefits managers.
These programs typically include a combination of two distinct components: a Workers Compensation contract and a short-term and long-term disability program. When such a program is implemented effectively and for the right organization, risk managers can expect to see improved claim results, administrative efficiencies, consolidated reporting, improved return-to-work outcomes, and elimination of claims double-dipping into one or the other program.
Many companies are taking a comprehensive approach to their Workers Compensation program. This means applying best practices and the program's core concepts - such as incident prevention, illness and injury treatment, and return to work - to all health- related incidents that affect employee productivity. Advances in technology give underwriters and risk managers access to the merged data necessary to fully understand employee exposures.
These underwriting trends may take a few years to become clearly visible to all risk managers. Today, the only clear trend is that change is happening. In the new Workers Compensation marketplace, successful programs will result when risk managers work closely with all areas of their organization to understand the unique exposures and develop a partnership to manage all employee-related risks.
...