Self Insurance Etcetra

Reinsurance

With few exceptions, insurance companies do not take the full risk. They pass a portion of that risk to reinsurance companies that specialize in that market. Self insurers do not assume the full risk, either. Reinsurance is available that limits risk using two different products. Although there are similarities between worker's compensation and group medical, there are decided differences. We will review worker's compensation first.

Aggregate Excess provides protection for the sum of all accidents that occur limited by the amount of each claim and the policy limit of the aggregate coverage. The claim amount that can be applied to the aggregate is capped at the retention (deductible) of the specific excess defined below. The aggregate loss fund (retention) is like a pot of money with a defined maximum amount. As claims are paid, the amount is charged against the total pot of money. When the cap of the aggregate loss fund is reached, the reinsurer will reimburse for dollars spent beyond, up to the aggregate limit of the policy.

Specific Excess provides catastrophic-type coverage in that it deals with one single occurrence regardless of the number of claims made as a result of that one incident. The exception to this is in the case of occupational disease. Each claimant for occupational disease is considered a separate retention. In the case of health care institutions, an endorsement is available for communicable disease events that provides for one retention after one to three claims depending on the carrier. The specific has a retention (deductible) that is charged against the aggregate. In other words, the retention is the responsibility of the self insurer and therefore comes out of the aggregate retention. All costs paid on that claim over the specific retention are reimbursed by the reinsurer up to the limit of the specific portion of the policy.

Policy Limits vary depending on the reinsurer and what amount the self insurer will select. Generally, the limit of the Aggregate Excess policy is from $2,000,000 to $5,000,000. Keep in mind that only costs below the specific retention are charged against the aggregate so that regardless of the size of the claim, about $300,000 will be charged against the aggregate for that occurrence.Specific excess limits vary from $5,000,000 to Statutory. Statutory limit covers all costs over the specific retention of a single event required by the state worker's compensation statute.
The current (July 1998) reinsurance market is very soft and excellent arrangements can be made providing lower retentions, higher limit and lower premiums.

The first step is to obtain a reinsurance proposal for worker's compensation by completing an application that is available. A proposal should be available in about two weeks or less assuming the required information is forthcoming.

Group Medical Self Insurance or, as it is known as "self-funding" has some very important difference from worker's compensation excess. First, where the worker's compensation excess policy is an occurrence policy, group medical stop loss is generally on a paid basis. That is, reimbursement is made only on claims that have occurred and paid during the policy period. There are a number of variations. Occurred in twelve months and paid in fifteen months is one example.

Basically, claims are covered that have occurred during the twelve month policy period. That is basic insurance. However, reimbursement for the bills for the subsequent covered services are made only when they are paid during a specific period, also delineated in the reinsurance contract. To prevent a gap in payments, bills for those covered claims that occurred in the prior twelve months but not completely paid during the same twelve months would be paid and charged to the second year aggregate.This works as long as the self insurer remains with the same carrier. A new carrier might increase the aggregate somewhat to account for payments for claims from the just concluded contract. This is called a "run in".

Specific and aggregate coverages are available in the self-funded market as in the case of worker's compensation. Again, with several changes. Specific is generally written to cover one person all illnesses for the contract period. It might, however, cover one family unit. The retentions can vary from $10,000 to $50,000 and higher. The Aggregate deductible is usually calculated at 125% of expected claims. An application for Group Medical reinsurance is available.

For definitions of reinsurance

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