What Is Self-Insurance?
Risk Retention Method Used By Large Organizations
Risk Retention Method Used By Large Organizations
Self-Insurance is retention of risk by an organization that has the desire and the ability to pay for losses up to a certain level. Beyond the chosen self-insured level, layers of excess insurance may be purchased. The organization that has the duty to pay typically wants control over how the claim is handled and resolved.
Why Do Organizations Self-Insure?
To control claim outcomes. To reduce insurance costs. To retain its choice of counsel. Organizations that self-insure typically understand their risks and have the financial ability to pay for losses without the need for first dollar insurance. In addition to paying less insurance premium, self-insureds may take control of their claims or hire a third party administrator. Self-Insureds value the closer control of how and when claims are paid. Some organizations cannot find properly priced insurance policies for certain unique risks forcing them to self-insure. Self-Insurance allows an organization to keep confidential or proprietary information within its borders. This makes self-insurance attractive for organizations with valuable data and intellectual property.
When Organizations Self-Insure, Who Is Responsible For Claims Handling?
The Self-Insured organization is responsible for claims handling. A benefit to Self-Insurance is retaining the right to choose defense counsel. For many Self-Insureds, this is an opportunity to better control the outcome of lawsuits. Self-insureds can prevent undesirable settlements and better direct litigation strategy with regard to cost and timing. Organizations not interested in self-administration may find it advantageous to use a third party administrator specializing in claims common to their industry.
Why Use a Claims Management System?
A claims system helps an organization understand the causes and the extent of losses. An organization’s loss experience develops over the course of years. No single year in isolation can provide an accurate estimate of future experience. A Self-Insured organization cannot rely on the memory of risk managers, attorneys or finance staff to provide the details of losses that happened years ago. Those individuals may not be available when it comes time to obtain a renewal quote. A claim system can produce reports that show the optimal point where retentions by exposure should be set. Finally, a claims system can prevent costly handling mistakes.
A claims system can provide the answers to many questions regarding past results.
Which divisions incur the most claims?
Which operations incur the most severe losses and why?
What Loss Control measures can be introduced to reduced frequency and severity?
Which service providers are performing best?
What Are The Costs Involved In Outsourcing Claims vs. Handling In-House?
For certain companies, having a TPA makes good sense. For others, a TPA can be more expensive and less secure than inside handling. First, there is the cost of transferring information to the TPA accurately and timely. Second, there is the risk of breaches in sensitive personal information no longer under the control of the organization. Even when data is transmitted properly and securely, handling protocols must be followed accurately. This can be a challenge when each claim is unique and the Self-Insured organization may have a different strategy or handling preference for each claim. The constant management and communication necessary between the organization and the TPA adds to the total cost. For companies who desire a seamless process where full control is maintained, the Direct Claim Solution is the answer.
What If Our Organization Does Not Have Dedicated Staff For Handling Claims?
The lack of dedicated claims staff should not be an impediment. An organization that desires the control and cost savings of handling its own claims can delegate claim responsibilities internally. Claim reserving and claim management can be handled by one or more professionals in the legal department, the risk management department or finance department. One of the most important attributes in a claims handler is motivation and desire. In-house professionals are in the best position to understand the legally relevant facts and legal aspects of a claim. Outside sources can be consulted to answer complex legal issues or to provide factual investigation. Most TPAs and insurance adjusters hire outside service providers to perform investigations and to provide legal analysis. The system screens of DCS are arranged in a way that facilitates proper claim decisions. Current staff can quickly become proficient at the skills necessary to handle the organization’s claims. Claims Handling methods and training can be provided by Direct Claim Solution’s risk management professionals.
Can the System Integrate With Our Accounting Software and Generate Claim Payments to Vendors and Claimants?
Yes. Payment and reserve transactions can be integrated into the Accounting systems used by the organization to generate checks and feed into the organization’s General ledger. Claim reserve and recovery transactions can be uploaded to financial and accounting software such that periodic financial statements can reflect claims activity within the period. The system also provides claim reports and loss runs for use in analyzing loss trends, frequency and severity by various exposure and loss types.
Federal law requires self-insured organizations to comply with Medicare reporting requirements. When settling with Medicare eligible claimants on injury claims, will DCS help identify and address those issues?
Yes. Self-Insured organizations handling claims are bound by Medicare compliance laws in the same way as insurance companies. The Medicare Secondary Payer Act and Section 111 of the MMSEA (Medicare and Medicaid SCHIP Extension Act) are two such laws. These laws require a Self-Insured organization to identify Medicare eligible claimants, report settlements made to those claimants, and address any Medicare liens in conjunction with settlement. DCS prompts the claims professional to identify losses that qualify for compliance. And, proper reporting can be completed using DCS or an outside service provider depending on your preference.