The Alternative Market Can Give You Control In Workers Comp Savings

What is the Alternative Market?

 
The Alternative Market or Alternative Risk Transfers (ARTs) are insurance programs that typically keep some part of the risk instead of transferring all of the risk as in a “traditional” insurance policy. The Alternative Market has various types of programs like:

·         Self-insurance

·         Captives

·         Risk Retention and Risk Purchasing Groups (RRGs)

·         Rent-A-Captives

·         Sponsored Captives

·         Insurance pools

·         Association Groups


The purpose of all Alternative Risk Transfers programs is to recoup or retain the underwriting profit. Companies that invest in loss control and maintain tight controls on their claims often have lower losses. In the traditional market, the insurance carrier collects a premium and uses it to pay the losses of the good and the bad companies.

 
Self-insurance
 
Some employers self-insure through insurance pools. They set aside funds in anticipation of workers' compensation claims instead of buying insurance. This is a cost-saving method for safety-oriented firms. In states where this is allowed, many large employers self-insure. Many small businesses form groups to insure themselves and decrease risks.
 

Captives
 
This is an insurance company that is controlled by its owners. A captive usually insures businesses that are related to it through common ownership. The company pays premiums based on its own performance, not the industry’s performance. A captive's insured’s are its shareholders that control underwriting policies, price risks, set investment policies and direct the company. 
 
 
Risk Retention and Risk Purchasing Groups (RRGs)
 
These are captives that write only liability coverage.  An RRG with a federal charter can write liability coverage in any state where it is registered without having to become a licensed carrier in each state or use a fronting company. This can reduce the costs of crossing state boundaries. Some states allow reciprocal risk retention groups, which are an unincorporated association of individuals or entities that exchange insurance contracts through an attorney-in-fact, which acts as an agent or manager. In a reciprocal, profits and losses are allocated back to each member. The income and related income tax reverts back to the members. This can be a tax advantage to groups where the members are non-profit companies.
 
 
Rent-A-Captives
 
These are popular with medium-sized companies. Here the policyholder is insured by a captive without owning it. A captive rents its capital, surplus, and license to the policyholder and usually provides administrative services.
 
 
Sponsored Captives
 
These are a type of rent-a-captive that is not created by its insured’s’, who have no control or ownership in the captive. Sponsored captives allow businesses to insure their own risks without establishing their own captive.
 
 
Insurance pools
 
These are joint underwriting operations where the participants assume a predetermined and fixed interest in all business written.
 
 
Association Groups
 
An association captive is owned by members of a common industry or trade. Participation is limited to members of the association.

 
Summary
 

Companies that participate in Alternative Risk Transfers programs, especially captives that own their own insurance company, realize more control by paying only the claims they incurred and not the losses of bad companies.  Profits on invested surplus (the underwriting profit) go to the group’s members or captive owner rather than an insurance company.

 

Author Rebecca Shafer, JD, President of Amaxx Risk Solutions, Inc. is a national expert in the field of workers compensation. She is a writer, speaker, and publisher. Her expertise is working with employers to reduce workers compensation costs, and her clients include airlines, healthcare, printing/publishing, pharmaceuticals, retail, hospitality, and manufacturing. She is the author of the #1 selling book on cost containment, Workers Compensation Management Program: Reduce Costs 20% to 50%. Contact: RShafer@ReduceYourWorkersComp.com.

 

Editor Michael B. Stack, CPA, Director of Operations, Amaxx Risk Solutions, Inc. is an expert in employer communication systems and part of the Amaxx team helping companies reduce their workers compensation costs by 20% to 50%. He is a writer, speaker, and website publisher.  www.reduceyourworkerscomp.com Contact mstack@reduceyourworkerscomp.com

 


WORKERS COMP MANAGEMENT MANUAL:  www.WCManual.com

VIEW SAMPLES PAGES

MODIFIED DUTY CALCULATOR:  www.LowerWC.com/transitional-duty-cost-calculator.php

 

Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker or agent about workers comp issues.

 

©2012 Amaxx Risk Solutions, Inc. All rights reserved under International Copyright Law. If you would like permission to reprint this material, contact us at: Info@ReduceYourWorkersComp.com.

How The Alternative Market Can Reduce Your Workers Comp Costs

 

What is the Alternative Market?
 
The Alternative Market or Alternative Risk Transfers (ARTs) are insurance programs that typically keep some part of the risk instead of transferring all of the risk as in a “traditional” insurance policy. The Alternative Market has various types of programs like:
 
·             Self-insurance
 
·             Captives
 
·             Risk Retention and Risk Purchasing Groups (RRGs)
 
·             Rent-A-Captives
 
·             Sponsored Captives
 
·             Insurance pools
 
·             Association Groups
 
 
The purpose of all ART programs is to recoup or retain the underwriting profit. Companies that invest in loss control and maintain tight controls on their claims often have lower losses. In the traditional market, the insurance carrier collects a premium and uses it to pay the losses of the good and the bad companies.
 
 
Self-insurance
 
Some employers self-insure through insurance pools. They set aside funds in anticipation of workers' compensation claims instead of buying insurance. This is a cost-saving method for safety-oriented firms. In states where this is allowed, many large employers self-insure. Many small businesses form groups to insure themselves and decrease risks.

 
Captives
This is an insurance company that is controlled by its owners. A captive usually insures businesses that are related to it through common ownership. The company pays premiums based on its own performance, not the industry’s performance. A captive's insured’s are its shareholders that control underwriting policies, price risks, set investment policies and direct the company. 

 

 
 
Risk Retention and Risk Purchasing Groups (RRGs)
 
These are captives that write only liability coverage.  An RRG with a federal charter can write liability coverage in any state where it is registered without having to become a licensed carrier in each state or use a fronting company. This can reduce the costs of crossing state boundaries. Some states allow reciprocal risk retention groups, which are an unincorporated association of individuals or entities that exchange insurance contracts through an attorney-in-fact, which acts as an agent or manager. In a reciprocal, profits and losses are allocated back to each member. The income and related income tax reverts back to the members. This can be a tax advantage to groups where the members are non-profit companies.
 
 
Rent-A-Captives
 
These are popular with medium-sized companies. Here the policyholder is insured by a captive without owning it. A captive rents its capital, surplus, and license to the policyholder and usually provides administrative services.
 
 
Sponsored Captives
 
These are a type of rent-a-captive that is not created by its insureds, who have no control or ownership in the captive. Sponsored captives allow businesses to insure their own risks without establishing their own captive.
 
 
Insurance pools
 
These are joint underwriting operations where the participants assume a predetermined and fixed interest in all business written.
 
 
Association Groups
 
An association captive is owned by members of a common industry or trade. Participation is limited to members of the association.
 
Summary
 

Companies that participate in ART programs, especially captives that own their own insurance company, realize more control by paying only the claims they incurred and not the losses of bad companies.  Profits on invested surplus (the underwriting profit) go to the group’s members or captive owner rather than an insurance company.

 

Author Rebecca Shafer, JD, President of Amaxx Risk Solutions, Inc. is a national expert in the field of workers compensation. She is a writer, speaker, and publisher. Her expertise is working with employers to reduce workers compensation costs, and her clients include airlines, healthcare, printing/publishing, pharmaceuticals, retail, hospitality, and manufacturing. She is the author of the #1 selling book on cost containment, Workers Compensation Management Program: Reduce Costs 20% to 50%. Contact: RShafer@ReduceYourWorkersComp.com.

 

Editor Michael B. Stack, CPA, Director of Operations, Amaxx Risk Solutions, Inc. is an expert in employer communication systems and part of the Amaxx team helping companies reduce their workers compensation costs by 20% to 50%. He is a writer, speaker, and website publisher.  www.reduceyourworkerscomp.com Contact mstack@reduceyourworkerscomp.com

 


WORKERS COMP MANAGEMENT MANUAL:  www.WCManual.com

VIEW SAMPLES PAGES

MODIFIED DUTY CALCULATOR:  www.LowerWC.com/transitional-duty-cost-calculator.php

 

Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker or agent about workers comp issues.

 

©2012 Amaxx Risk Solutions, Inc. All rights reserved under International Copyright Law. If you would like permission to reprint this material, contact us at: Info@ReduceYourWorkersComp.com.

Fiduciary Responsibilities of the TPA

pic8Nothing in this article is intended as legal advice. Seek the assistance of an attorney in drafting your next TPA contract. This article is based on hypothetical situations.


The self-insured
 employer was livid. In the self-insured employer’s eyes, the third-party administrator (TPA), who had handled their workers compensation claim files for three years, had not lived up to promises made when discussing the claims handling contract. The self-insured employer remembered the TPA had promised “excellent claim service” and “cost control,” but the self-insured employer had to deal with inquiries from the Workers Compensation Board, complaints from unpaid medical providers, and their average claim cost was up almost 50 percent in just three years.

 

 

The self-insured employer wanted to sue the TPA for breach of contract. The attorney the self-insured employer consulted with had a different idea. Instead of suing for a breach of contract, the attorney recommended a lawsuit for the TPA’s breach of their fiduciary responsibilities.(WCxKit)

 

 

Why? The relationship between a self-insured employer and a TPA of claims is one of trust and faith. The self-insured employer relies on the TPA to act in every instance in a manner that is in the best interest of the self-insured employer. In this case, the self-insured employer was relying on and trusting the TPA to handle their workers compensation claims with the same due diligence and professionalism they would expect from a workers compensation insurance company. As the self-insured employer was paying the TPA to handle the self-insured employer’s financial obligations (the payment of workers compensation claims) and trusting the TPA to handle their assets (their money) in a prudent and careful manner, a fiduciary relationship was established between the self-insured employer and the TPA.

 

 

The self-insured employer relied on the TPA’s superior workers compensation claims knowledge and claims handling skills in the management of the self-insured employer’s workers compensation claims program. The self-insured employer relied on the TPA to put the interest of the self-insured employer ahead of the TPA own interest in every claims handling decision made.

 

 

The TPA is in the business of adjusting insurance claims. The self-insured employer is in the business of manufacturing plastics. Therefore, the TPA’s knowledge and understanding of workers compensation claims is far superior to that of the self-insure employer. The TPA was being compensated to provide the self-insured employer with claims handling, guidance, counseling and advice on their workers compensation claims. At any point where the TPA saw the self-insured employer making an incorrect decision on a workers compensation claim, the TPA had both a duty and the responsibility of a fiduciary to explain both the ramifications and the probable outcome of an incorrect claims handling decision. The self-insured employer was of the opinion the TPA had repeatedly failed to provide proper guidance.

 

 

The self-insured employer was trusting the TPA to handle the self-insured employer’s workers compensation claims in accordance with generally accepted standards (commonly known as best practices) within the insurance industry. The original contract between the self-insured employer and the TPA was silent on the subject of claim quality. Best practices for claims handling had not been incorporated into the contract. The purpose of best practices is to control claim costs while providing the insured/self insured with a quality claims product. Each time the TPA adjuster, claims supervisor or claims manager failed to follow the generally accepted claims handling standards, they were breaching their fiduciary responsibility to the self-insured employer, but not their contractual requirements.

 

 

The original contract between the self-insured employer and the TPA also had not specified the number of claim files each adjuster would be assigned. The adjusters at the TPA were handling an average of 180 workers compensation files each. This number of claims is far above what a claims adjuster can properly handle. The TPA knew or definitely should have known a claims inventory/workload of this size was unrealistic and generally accepted claims handling standards could not be met. Each time the claims supervisor or claims manager assigned a new workers compensation claim to the claims adjuster with a claims inventory of 180 files, the TPA was intentionally breaching their fiduciary responsibility to the self-insured employer.

 

 

Any time a self-insured employer and a TPA enter into a claims handling agreement, the self-insured employer should be sure the contract specifies it is a fiduciary agreement. The contract should incorporate the best practices in claims handling. The contract should specify the number of claims files that can be assigned to any one adjuster. The contract should also specify how any damages the self-insured employer incurs due to the TPA’s breach of fiduciary responsibilities will be resolved.(WCxKit)

 

 

 


Author Rebecca Shafer
, JD, President of Amaxx Risk Solutions, Inc. is a national expert in the field of workers compensation. She is a writer, speaker, and website publisher. Her expertise is working with employers to reduce workers compensation costs, and her clients include airlines, healthcare, printing, publishing, pharmaceuticals, retail, hospitality, and manufacturing. See www.LowerWC.com for more information. Contact: RShafer@ReduceYourWorkersComp.com.

 

 
Our WC Book:  http://www.wcmanual.com

WORK COMP CALCULATOR: http://www.LowerWC.com/calculator.php

MODIFIED DUTY CALCULATOR:  http://www.LowerWC.com/transitional-duty-cost-calculator.php

WC GROUP: http://www.linkedin.com/groups?homeNewMember=&gid=1922050/

SUBSCRIBE: Workers Comp Resource Center Newsletter

 

Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker or agent about workers comp issues.

 

©2011 Amaxx Risk Solutions, Inc. All rights reserved under International Copyright Law. If you would like permission to reprint this material, contact Info@ReduceYourWorkersComp.com.

 

Bundled Program Leakage vs. Unbundled Program Leakage

 

pic9The debate over bundled program services vs. unbundled program services is often a matter of perspective. For readers wondering what we mean, bundled program services are when the self-insured employer gets all claim handling services from one service provider. Unbundled is when the self-insured employer gets claim handling services from multiple providers.

 

 

In addition to claims-adjusting services, there is an array of auxiliary services the self-insured employer will need. These include medical triage, physical therapy, nurse case management, medical bill review, pharmacy benefit manager, special investigations unit (SIU), defense attorneys, risk control/safety services, and data management services. In the bundled program, a single third-party administrator (TPA) will provide all claim handling services to the self-insured employer, while in the unbundled program, the self-insured employer will be dealing with several service providers besides the TPA providing the claims adjusting.(WCxKit)

 

 

When an account executive for an insurance broker’s office and an account executive for a large TPA (with all the various services available) talk to a self-insured employer’s risk manager, account executives will place the emphasis of their sales pitch on the convenience of having one TPA administer everything, the seamless coordination of all aspects of claims handling, and the economies of scale having the multifaceted TPA handle everything.

 

 

When an account executive of a small TPA delivers a sales presentation,  emphasis is placed on the better price o be provided without all the large TPA overhead, along with the personalized attention their adjusters and other employees will provide.

 

 

Neither the large nor small TPA will mention leakage (the money you will spend unnecessarily) by having either the bundled program approach or the unbundled program approach. Both approaches have flaws and the account executives for both the bundled and unbundled programs will often not realize the leakage their company’s approach to claim services cost the self-insured employer.

 

 

Leakage in the bundled program often results from the fact that it is a bundled program. Without precise guidelines (which account executives definitely do not want), it is way too easy in the bundled program for an adjuster to assign a nurse case manager on a claim where the adjuster could make the same few phone calls to find out an employee’s medical status. It is also too easy for the adjuster to refer a claim to the SIU then to take necessary recorded statements from the employee, the employee’s supervisor, etc. When a self-insured employer is paying a nurse case manager, the pharmacy benefit manager and the SIU to make phone calls the adjuster should have made, you can have major unnecessary claim-handling expense leakage.

 

 

Another leakage source in the bundled programs is often service cost. If the in-house nurse case manager at a large TPA charges $10 more per hour for the same nurse case management services than the small independent provider of medical management services — that is leakage. All charges to the self-insured employer may be valid, but if the nurse case manager puts in 50 hours of work over the life of the claim, an extra $10 per hour amounts to $500 in leakage.

 

 

Leakage also occurs with unbundled programs. If a TPA has to contact an outside vendor for the claim handling services needed, any communication or follow-through delays can become leakage. For example, if a TPA adjuster has to wait on approval to employ a nurse case manager or an outside surveillance company, a two-day delay is two extra days of indemnity benefits. That may not sound like much, but if the same nurse case manager the adjuster hired recommends a change in medical care and the adjuster has to obtain his supervisor’s approval another day is lost. Again it does not sound like much, but the cumulative affect of delays in an unbundled program can bring substantial additional cost.

 

 

Another aspect of the unbundled program to avoid is delegating to the adjuster the responsibility of hiring other vendors . Other vendors in an unbundled program should be designated by the self-insured employer. If not, the adjuster hires his golfing buddy to do surveillance on the claimant with the questionable injury. Or, the adjuster may hire the defense attorney who has the best Christmas party, not the best defense attorney for your work comp claims. When the adjuster is also given the responsibility of reviewing and approving vendor service fees when the adjuster has chosen them herself, the adjuster could be more lenient, resulting in additional leakage through higher-than-necessary service bills.(WCxKit)

 

 

Whether the self-insured employer uses a bundled services approach or unbundled services, it must remain the priority of the self-insured employer to closely scrutinize all service costs to be sure the services are being provided in the most cost-efficient manner and that claims leakage does not occur.


Author Rebecca Shafer
, JD, President of Amaxx Risks Solutions, Inc. is a national expert in the field of workers compensation. She is a writer, speaker, and website publisher. Her expertise is working with employers to reduce workers compensation costs, and her clients include airlines, healthcare, printing, publishing, pharmaceuticals, retail, hospitality, and manufacturing. See www.LowerWC.com for more information. Contact: RShafer@ReduceYourWorkersComp.com.

 

 
Our WC Book:  http://www.wcmanual.com

WORK COMP CALCULATOR: http://www.LowerWC.com/calculator.php

MODIFIED DUTY CALCULATOR:  http://www.LowerWC.com/transitional-duty-cost-calculator.php

WC GROUP: http://www.linkedin.com/groups?homeNewMember=&gid=1922050/

SUBSCRIBE: Workers Comp Resource Center Newsletter

 

Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker or agent about workers comp issues.

 

©2011 Amaxx Risk Solutions, Inc. All rights reserved under International Copyright Law. If you would like permission to reprint this material, contact Info@ReduceYourWorkersComp.com.

 

The Road to Self Insurance

If your annual workers compensation insurance premium bill is making your eyes squint when you look at the bill, it may be time to consider self insuring your worker compensation. Self insurance can reduce your overall cost of workers compensation by an average of 20 to 30 percent (your company saves the broker's commission and the insurance companys profit, but you are still paying the cost of the claims and the cost of the claims administration). A broker can help you file for self-insurance, and there is, of course, a fee for that service.
 
 
The trade-off is your risk management department will have to take on the role and responsibilities of your insurance broker and insurance company.   Plus, unless you are the size of Exxon, Microsoft or Wal-Mart, you will still need to purchase excess insurance to protect your company from catastrophic workers' compensation claims. If you decide to go down the road to self insurance, the following is a road map on how to get there (for a single company, the road map for joining a group self insurance program has additional requirements). (WCxKit)
 
 
If you are considering self insurance, you will need to analyze the financial capabilities and capacity of your company – can your company cover the cost of the toll to go down this road? The first action on the road to self insurance is to contact your state government to determine the financial stability and security requirements in your state. Every state government regulates self insurance (North Dakota and Wyoming do not permit self insurance) and each states establishes minimal financial requirements, which can vary significantly. A security deposit is required, normally in the area of $500,000 to $1 million, but it can be higher. The amount of the security deposit is normally determined by your companys current payroll and the classification code for your company. Cash equivalents – letters of credit and security bonds – are acceptable in most states. 
 
 
If after reviewing your financial capacity to self-insure, you decide you want to proceed with self insurance, you will need to start gathering the documentation you will need for submission to your state department of insurance.   While there will be variance in what is required by the different states, you will most likely need the following documentation:
 
1.      the states application for self insurance for workers compensation
 
2.      your current payroll divided by the NCCI classification code or state classification codes
 
3.      your payroll history divided by the NCCI or state classification codes for the last 3 years (up to 5 years in some states)
 
4.      your most recent premium audit from your current worker' compensation insurer
 
5.      your current insurers experience modification factor
 
6.      your incurred lost history for the last 3 years (or 5 years)
 
7.      your independently audited financial statements for the last 3 years (up to 5 years in some states)
 
8.      your business organization documents (corporation, partnership, limited liability company, sole proprietor , etc.)
 
 
In addition to the required documentation to be submitted to the state, you should start putting together information on the ways your company will reduce risk and cost when your company is self insured. This would include information on:
 
1.      your safety program [improvements in your loss prevention program any time is a good idea, but will have a substantial positive impact when you are self-insured]
 
2.      your drug-free workplace program [companies with a drug-free workplace program have fewer accidents, resulting in fewer injuries]
 
3.      your return to work program [when injuries do occur, a structured modified duty program will reduce the cost of the work comp claims]. This can include using best practice assessment, and the National Workers Compensation Management Score (NWCMS). An open-ended job return policy is best.
 
4.      your proposed medical management program [when injuries do occur, you will want to have a medical triage program available, plus a nurse case management program for those employees who are unable to return to work within your states indemnity benefits waiting period]
 
5.      your proposed third party administrator to handle your workers compensation claims, or your proposed self-administered claims office. [A selection of the third party administrator based on level of customer service, price, flexibility and workers' compensation claims skill will need to be made.   If you decide to self-administer the claims, you will need to hire a claims manager, supervisors, adjusters and support staff, arrange for physical facilities, arrange for a claims management system, etc.]
 
6.      how your company will pay the cost of assessments and taxes [As a self insurer, you will be treated as an insurance company for the purpose of the state department of insurance to collect fees assessed for such things as the assigned risk pool, the second injury fund and the states insurance guarantee fund. Self insured companies are assessed based on claims paid, which is lower than insurance companies who are assessed on premiums collected.] (WCxKit)
 
 
While the road to self insurance will at first have a few curves that have to be navigated, it is often a trip worth taking as the benefits of self insurance will make it worthwhile. In addition to the financial savings, self insurance will provide the employer with greater control over the cost of workers compensation, while compelling the self-insured company to improve their safety program, their drug-free workplace program, their return to work program and their medical management program. 
 
 
Author Rebecca Shafer, JD, President of Amaxx Risks Solutions, Inc. is a national expert in the field of workers compensation. She is a writer, speaker, and website publisher. Her expertise is working with employers to reduce workers compensation costs, and her clients include airlines, healthcare, printing/publishing, pharmaceuticals, retail, hospitality, and manufacturing. See www.LowerWC.com for more information. Contact:RShafer@ReduceYourWorkersComp.com or 860-553-6604.
 
Author Robert Elliott, executive vice president, Amaxx Risks Solutions, Inc. has worked successfully for 20 years with many industries to reduce Workers Compensation costs, including airlines, healthcare, printing/publishing, pharmaceuticals, retail, hospitality and manufacturing. See www.LowerWC.com for more information. Contact:Info@ReduceYourWorkersComp.com or 860-553-6604.
 
 
 
Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker or agent about workers comp issues.
 
©2011 Amaxx Risk Solutions, Inc. All rights reserved under International Copyright Law. If you would like permission to reprint this material, contact Info@ReduceYourWorkersComp.com

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