Tag Archives: general liability

General liability is a line of insurance that is used when paying out to the insured responsible for any incident/claim.

Captive, Line of Insurance, Practice Groups, Risk Financing, Risk Management, Risk Transfer

What Is The Cost To Run A Captive Insurance Program?

How much does it cost to start and run a captive insurance company? It’s the most frequent upfront question we get from organizations that are looking at starting their own captive insurance company for their organization. The short answer is zero, but when we tell business this they’re left in shock.  After we walk them through the process of how we got zero as the price, it makes perfect sense.

Let’s start at the end and work back; reverse engineer this. First off it’s an investment that yields an ROI, not an expense like your current insurance program. A well-run captive generates has gross savings of at least 30% off your current insurance program on average; irrespective of what structure you’re coming from; unless of course, it’s another captive. That’s because the captive shares in the underwriting profits would typically go 100% to your insurance carrier. Curious about Captives? If you want a better understanding of what a Captive is, and how it could fit in your organization CLICK HERE to download our free ebook.  

Further, the risk-sharing mechanism is designed to reduced your upfront premium outlay. Your betting on yourself that your losses will be less than your premium & admin costs. In a well-designed, well-run Captive the results are undeniable. You can only generate & retain these profits, with tax efficiency, in a captive structure. Thus if you back out the cost to run and administer the captive from the profits you generate the cost is ZERO! Someone smart told me years ago that you have to spend money to make money.

In order to consider a captive structure you need these three (3) attributes :

  • Size & Scale: You need to be spending in excess of $500k in your property & casualty insurance program. You can include employee benefits here too if you wish. Many captives are set up to fund employee health expenses to save on their health & benefits insurance premium. The closer you get to $1 mill in total insurance spend, the better this solution looks. As the numbers you expense in your insurance program increase there is a direct correlation by % to your end benefit.
  • Free Cash Flow: In finance terms, you need to have strong financials and good free cash flow. The captive will plug into this “resource” and amp it exponentially for your company by keeping that free cash flow tax free instead of it having the direct profits spill down into the partners’ individual tax return.
  • Underwriting Profits: Too often when we interview companies and CFO’s about a Captive Alternative their main driver is looking for a cheaper insurance quote. They think that by forming a captive they can out run their claims problems and high insurance premiums. This is a fools’ errand. The last thing you want to do is switch places with the insurance carriers if THEY aren’t making money on your account.

Our demarcation line is a minimum of 35% undeveloped loss pic; which is a ratio between incurred claims & premiums paid. If your loss pic is just over that 35% threshold we should have a discussion. If your over 50%, you need to solve your claims problems first before you can consider a captive solution as a potential option.

Breaking Down the Cost of a Captive

You can’t simply compare the “cost” of a captive to the “cost of your current insurance program”, especially in a 1-year snapshot. The correct way to evaluate whether a captive solution is right for your organization purely from a numbers standpoint is a (5) year window. The data set is larger and more representative of your management team. It’s less “noisy” from a numbers standpoint, enabling you to see the big picture.

Further to simply look at this purely in terms of financial implications we suggest is short-sighted as well. This a long-term strategic play. Captives have major strategic advantages as you compete for business on the street than simply buying and expensing insurance year over year.

In our view, Captives are an investment that yields a consistent, measurable ROI, not a cost or expense. It’s an investment in YOU, for YOU! If you want to be at the vanguard and stay 3 steps ahead of your competition we suggest you open up a dialogue of what this solution could look like for you. CLICK HERE to have a 10-minute discussion with one of our Risk Advisors.

General Liability Insurance, Risk Financing

What’s The Difference Between a Deductible & Self-Insured Retention In Your Commercial General Liability Policy?

With respect to your commercial general liability insurance policy; choosing between a high deductible or self-insured retention can have a major impact on your competitive position as your business competes on the street. We we want to give you some direction BEFORE you pick the insurance program structure for your commercial general liability policy.

Difference Between Self-Insured Retention & Deductible When It Comes To Credit

The first is who is issuing your company “credit”. With a deductible, it’s the insurance company. When a claim needs to be paid out, it’s the insurance carrier that pays the full dollar amount; provided coverage was triggered. The insurance carrier then invoices your company for the agreed-upon deductible amount. Your client (if we are speaking about a liability policy ) is made whole. Thus it’s the insurance companies balance sheet that’s out front, not yours. This is important an important distinction.

With self-insured retention, it’s YOUR companies balance sheet that gets put out front. The reason being; if a claim is presented that needs to get funded YOUR COMPANY pays the claim (up to the retention limit) ; THEN the insurance carrier comes in & funds the remainder of the loss. The point being your customer is issuing you “credit” in hopes that you have the financial capacity to fund the loss.

Difference Between Self-Insured Retention & Deductible When It Comes To Infrastructure

The second big issue is one of infrastructure. When you purchase an insurance policy with a deductible all of the insurance carriers infra-structure comes with it. This may include insurance adjusters, legal representation, engineering & forensics, professional accident investigation e.t.c. An insurance policy that has a deductible structure includes the carrier’s infrastructure for you to leverage.

In a Self Insured retention structure, you must provide the infrastructure. Adjusters, Loss Control Engineers, Legal representation (defense), a professional accident investigation team. At Metropolitan Risk we have all of this pre-built for our clients that choose to leverage the self-insured retention advantage.

Check out our Vlog on Deductibles Vs. Self Insured Retentions

Which structure is best for you?

Too often we meet the executive team of a company that cannot articulate the strategy of how they ended up in a particular insurance program structure. These companies are backed into their insurance programs because the insurance is the cheapest quote they’ve received. We are brought in because their costs keep rising because they started with the wrong goal. Our clients understand the price they pay on their insurance program is a direct result of how they prevent and manage their claims.

If your main challenge is “frequency” we suggest the self insured retention model. The main reason, you have far more control with a self-insured retention. Since it’s your infrastructure, they work for YOU, not the carrier; it’s your money. Thus you have a degree of control and efficiency that you don’t with a high deductible program. Where we see this being the most successful is where there are a lot of small nuance claims, trip & falls as an example.

Insurance carriers are claims processing factories, they just can’t achieve the same results that our self-insured retention clients can because they handle too much volume to give these small claims the kind of attention they need. Thus our clients that adopt this structure significantly compress their claims.

Those that stay inside a deductible program, or worse a 1st dollar plan (the carriers pay all claims from the first dollar). This is what we call the stealth commercial insurance squeeze. This is where the “incurred” claims continue to rise, resulting in commercial liability insurance premium increases! Remember; commercial insurance is essentially a really expensive credit line. The surcharges on these first dollar plans can result in a death spiral if you don’t take action.

A high deductible program works best in severity issues; (where you have 1 or 2 large claims in a policy year, think LABOR LAW!) No need to build out and pay for infrastructure; incurring those costs if you’re not going to materially impact the ultimate incurred loss which is key to achieving your goal. The more you positively impact your claims results the cost of the entire program reduces which is your goal.

Review your current loss history, run a loss pic, analyze what’s driving the results of your claim. Do you have a “frequency” issue or a “severity” issue? Once you understand your main challenge, then pick the correct insurance program structure to leverage. The best way to improve the results of your claims and lower the ultimate cost of your insurance program is to prevent the losses from happening in the first place.

 

Call a Risk Advisor today @ (914) 357-8444 or schedule a 10-minute call to walk through your challenge with our team.

 

Claims Management, Construction Practice Group Content, Food & Beverage Practice Group Content, General Liability Insurance, Human Services Practice Group Content, Line of Insurance, Risk Management, Transportation Practice Group Content, Workers Compensation Insurance, Workers Compensation Premium Audits

What A High Experience Mod Means and How It Can Affect You

You’ve just seen your Experience Modification Rating (EMR) and it is high again. Or your worst-case scenario, it has gone up again. Year over year, you’ve spent time shopping for your insurance due to your high EMR. It is time to stop shopping and start proactively working to lowering your EMR because eventually, it will catch up to you.

What Is Your Experience Mod?

Let’s start with a basic definition. What is your Experience Modification Rating or your EMR? A simple definition of EMR is Payroll divided by Claims. The video below explains what your experience mod is and what is expected of your organization. (If the video does not play in your browser click here.)

Remember, an average experience mod is a 1.0, this is like receiving a “C” on your report card. If you’re happy with this, stop reading now. Good luck, you’ll be competing against companies with a greater competitive advantage than you because they’ll have a much lower cost structure, higher profits, and a larger business development budget.  

Some Construction companies bidding on government work are ineligible if their EMR is above 1.0. 

How To Find Your Experience Mod Rate

The NCCI (National Council on Compensation Insurance), is a group that calculates Experience Modification Factors for companies across the entire United States. Some states have their own rating bureaus due to their size and complexity. For example, New York and New Jersey have the NYCIRB & NJCRIB respectively. For a detailed explanation of what your Experience Modification Factor is and how it’s calculated visit this site. 

Why is Your Experience Mod High?

There are a number of reasons why your EMR is high. The biggest factor is the number of open claims. If your organization has a high number of claims or one large claim on your Workers’ Comp policy your EMR may stay high until that claim is closed.

How This Affects Your Organization

What this means is that most companies will see another increase in their Experience Modification Factor following their next recalculation. That takes place on their “Unit Stat Date,” and, if left unchecked, your business could face higher rates, possible penalties, and Labor Department Violations.

What You Can Do To Lower Your Experience Mod:

  1. Track incidents (near misses) not just claims. Most claims can be avoided if you are meticulous about tracking all of the near misses that lead up to the eventual incident. Most claims could have been avoided in hindsight as the employee typically was taking shortcuts long before the ultimate injury occurred. Track these infractions and you will prevent at least one injury a year.

    High Experience Mod

  2. Investigate accidents immediately and thoroughly; take corrective action to eliminate the hazard. If you sense fraud, get aggressive; don’t be an easy target. We suggest Why Analysis follow all incidents. That’s a whole other article that can be accessed HERE.
  3. Report all incidents to your insurance broker or Risk Advisor immediately. Studies show the longer it takes to report a claim, the more expensive it will be. A 4-week delay in reporting an injury drives the cost of that same injury by 48% according to a Hartford Insurance study of over 2 million claims.
  4. Alert your workers’ compensation claims adjuster to any serious, potentially serious or suspect claims. Frequently monitor the status of the claim, and communicate with the adjuster to resolve them as quickly as possible. Too busy to do that,  have our Claims Advocates communicate with the adjuster on your behalf. Our Claims Advocates were insurance adjusters so they speak that language holding the carrier’s adjusters accountable.
  5. Every reported claim to your insurance carrier no matter the line of insurance should have an action plan attached to it to close out the claim. This is a big mistake most businesses make. They report it and then forget it until the policy comes up for renewal. At that point, they are shocked at the increase in the workers’ compensation insurance premium which is always driven by claims experience. Folks forget that workers’ compensation insurance is really a very expensive credit line to the business.
  6. Take an aggressive approach to providing light-duty or transitional to all injured employees upon their release from treatment. Return To Work programs are extremely powerful tools for lowering the cost of a workers’ compensation claim as they give leverage back to the employer, stopping the tail from wagging the dog.  Supervise light duty employees to ensure their conformance with restrictions.
  7. In serious cases that involve lost time, communicate with the claims adjuster to demonstrate your interest in returning the injured employee back to gainful employment.
  8. Set safety performance goals for those with supervisory responsibility. Success in achieving safety goals should be used as one measure during performance appraisals. At Metropolitan Risk this is just one of the K.R.I’s (Key Risk Indicators) we emphasize to establish internal standards and accountability.
  9. Develop a written safety program, and train employees in their responsibilities for safety. OSHA rules dictate for every facility location or job site there must be a competent person. Incorporate a disciplinary policy into the program that holds employees accountable for breaking rules or rewards them for correctly following safety procedures. This should be tied into the employee handbook which each employee receives when they are on-boarded for your org.
  10. Frequently communicate with employees, both formally and informally, regarding the importance of safety keeping safety top of mind at all times.
  11. Make safety a priority – senior management must be visible in the safety effort and must support the initiative.
  12. Evaluate accident history and near-misses at least monthly. Look for trends in experience, and take corrective action on the worst problems first.
  13. Ensure your payroll and class codes are accurate. Over 65 % of workers’ compensation audits have errors. See COMP CHECK .
  14. Ensure the correctness of your mod calculation. Far too often there are errors here as well. See COMP CHECK

You can build all this out organically by yourself OR speak to a Risk Advisor about our COMP CARE PLATFORM. We have this all built. It’s turn-key and ready to be deployed in your organization if you are serious about reducing your workers’ compensation costs. There are no short cuts…

How Metropolitan Risk Can Help

Still looking for more info? Still have question? We have a team of Risk Management specialists who are here to help! Contact a Risk Advisor today for more information on how you can work towards lower workers comp costs by closing claims instead of shopping for insurance.  Click here to book a 5-minute call with a Risk Advisor