As your company grows and evolves, you may begin to think that your current insurance program no longer meets your needs. If you feel that your company is starting to outgrow its insurance program, it may be time to analyze your risk profile and determine a better structure for obtaining insurance coverage. This is when working together with an actuary and a broker can prove useful.
If you've never used actuarial services before, or have only had contact with the actuary through an insurance broker, you may be somewhat confused about how these services can help you.
According to Al Rhodes of SIGMA Actuarial Consulting Group, a three-party team of actuary, broker and client can determine the best insurance program based on a thorough assessment of total cost of risk.
Growing mid-market companies sometimes become too big for a traditional guaranteed cost program. "While those programs may have been beneficial to the company previously, they lose their value if the carrier is making a disproportionate profit," Rhodes said. If the premiums start to cost more than actual losses, it may be time to consider a large deductible, self-insurance program or perhaps create your own captive insurance company. These options can help you achieve a better balance in your insurance program, ensuring that coverage is adequate, but not unnecessarily expensive.
Determining your Total Cost of Risk
SIGMA and HUB can work together on a total cost of risk (TCOR) analysis to determine the best program for your organization. Your claims history as well as your risk tolerance will factor into deriving your retention level.
It's important for your broker and actuary to understand your risk tolerance level," Rhodes said. "Some clients feel better about being closer to the claims by self-insuring and choosing a large deductible program. This option gives them more control over how claims are handled and reserved."
After you have chosen the retention level, SIGMA and HUB can collaborate to determine the best funding level. The TCOR assessment would include the sum of premium and retained losses at a given retention level, as well as expected losses and the client's confidence interval. Armed with this information, the actuary can help you quantify the potential variability of losses.
Tips to Minimize your Financial Risk
Choose coverage to mitigate industry-specific risk
Think about which risks and threats are present due to the nature of your business. For example, a medical office must have malpractice insurance. While many of your coverage needs may be obvious, your broker can also advise you on emerging risks in your industry as well as the availability of enhanced coverage.
Limit your risk in the aggregate, as well as per occurrence
If your firm is transitioning from a guaranteed cost to a different program, you will want to start out with a smaller amount for per occurrence losses. For example, you may begin with a $100,000 to $500,000 per occurrence loss payout, rather than $1 million per incident. Then, depending on the frequency of loss, your company can get a better sense of what the aggregate loss would be.
Start a proactive dialogue about premium costs
Working in tandem with an actuary and a HUB consultant helps you prepare for negotiations with your carrier. Actuaries can also step in during the Letter of Credit process with your carrier.
"It's best to do it on the front end, and that's why HUB and SIGMA bring a lot of value to clients by getting involved proactively," Rhodes said.
Contact your HUB broker to learn more about SIGMA actuarial services as well as other services that comprise an overall advisory strategy.