Many Turn to Self-Insurance for Greater Management Control
A November 1994 fax poll on self-insurance, co-sponsored by RIMS and CIGNA Property and Casualty Company in Philadelphia, shows a broad spectrum of risk managers are choosing self-insurance over traditional coverage, largely because it gives them increased management control. When risk managers create a self-insurance program, the survey shows that many turn to brokers for advice.
"Self-insurance" was defined as qualified self-insurance and programs where the company retains a high deductible. The definition excluded risk retention groups and captives. Many industry experts advised risk managers that they should have about $200,000 in annual workers' compensation costs before considering the self-insurance option. Aware of the benefits of self-insurance but too small to develop their own programs, many small businesses banded together to create self-insurance groups.
The participants ranged from analysts to vice presidents. Among them, 85 percent are considering self-insurance or currently self-insure for workers' compensation. In the general liability market, nearly 70 percent of the respondents either are considering self-insurance or currently self-insure. Susan Meltzer, associate director of risk and insurance at Bell Canada in Toronto, notes that the steady cash flows available to the utility allow for a high deductible option in general liability and other areas.
However, Steve Wilder, vice president of risk management at Walt Disney Corporation in Burbank, California, notes that this tactic can make the premium savings negligible when it comes to property coverage. He maintains that "most of the rate is for catastrophic losses and engineering charges that are all but fixed." Though Mr. Wilder holds more risk on general liability, he does self-insure property In fact, nearly 40 percent of the respondents either currently self-insure or are considering self-insurance for property exposures. In another vein, more than one-quarter of the responding risk managers think auto liability will be the next big area that companies will self-insure.
As the list of coverages for self-insurance grows, so does the driving force behind this trend - management control of corporate insurance. Nearly half of the respondents rank this factor as the most or second-most important reason behind the decision to self-insure. Even for small firms that cannot self-insure, experts advise their clients to assume a more hands-on management approach with insurance carriers, which could include auditing workers' compensation reserves and investigating whether a workplace accident results in claims. …