The self-insured or alternative risk market presents a lucrative opportunity for solution providers. While risk management firms, TPA's, and brokers offer some technology, the market is far less saturated compared to the insurance carrier market.
There are solution providers that cater to both traditional insurance carriers and self-insured organizations, and at the top of the list are core systems vendors for claims and policy administration.
Is the Self-Insured market for you?
Thousands of companies opt for self-insurance as a means to finance their workers' compensation, general liability, and other coverages, allowing them to cover losses without relying on traditional insurance policies.
Self-insured organizations operate differently from insurance companies as they do not engage in selling and servicing policies. Their main objective is to obtain the right amount of coverage at the most affordable cost. These organizations have intricate risk management requirements and vary in size, ranging from small entities that self-insure for their workers' compensation coverage to large risk pools consisting of multiple school districts or municipalities.
Let's consider the scenario of a prestigious public university, boasting an impressive enrollment of over 28,000 full-time students and employing 1,200 staff members. To manage their insurance needs efficiently, the university oversees three self-insured funds, namely:
- General Liability
- Auto Physical Damage
- Workers' Compensation
In addition to managing these coverages, the university also has approximately 70 insurance policies they purchase from commercial insurers.
The university's extensive campus infrastructure, which includes various buildings, a fleet of vehicles, and numerous athletic events, necessitates the acquisition of certificates of insurance and auto ID cards. In the event of any unique insurance requirements, the diligent risk management department is dedicated to thoroughly researching and finding suitable solutions. As a testament to their commitment to comprehensive coverage, the university recently added drone insurance to their portfolio.
To efficiently handle the extensive insurance needs of the university, three dedicated employees in the risk management department oversee all operations. However, in order to avoid the burden of hiring additional staff, the university is embracing technology that enables self-service options for both employees and students. Additionally, the university relies on a TPA to manage all claims processing.
Previously, the risk management department was burdened with an antiquated RMIS system, which forced them to navigate through a never-ending array of spreadsheets and documents. However, the university was fortunately able to secure the necessary justification for implementing a new and improved RMIS system that perfectly aligns with their requirements.
Unfortunately, numerous organizations facing similar risk management needs are not as fortunate. They find themselves grappling with outdated legacy systems, relying on spreadsheets and paper files to manage their insurance requirements. Furthermore, with limited staff, the risk manager faces the challenging task of striking a balance between securing adequate coverage and minimizing insurance costs for their organization.
Types of Self-Insured Organizations
There are a few basic types of self-insured or self-funded organizations.
Intergovernmental Risk Pools
These risk pools are created by public entities like K-12 school districts, public colleges and universities, government agencies, municipalities, and county governments. By joining together, members of the pool collectively share the cost of covering common risks, such as workers' compensation. This model offers numerous advantages, including cost savings, protection against fluctuations in commercial insurance rates, and the implementation of effective loss prevention programs.
One association that caters specifically to this market segment is AGRiP - The Association of Governmental Risk Pools.
Captives are insurance companies that are wholly owned and controlled by one or more parent organizations to insure their risks. A captive insurance company offers the flexibility to provide almost any coverage offered by a commercial insurance company. It empowers organizations to customize their coverages, have direct involvement in operations and underwriting decisions, and retain all the profits generated by the captive.
CICA - The Captive Insurance Companies Association was formed to support the development of captive insurance companies.
RRG's or Risk Retention Groups
Similar to captives, Risk Retention Groups are insurance companies that are owned by the individuals or organizations they insure. These groups typically consist of members who engage in similar business activities, such as a collective of dentists or builders.
These private organizations choose to self-insure for their insurance needs, either partially or entirely. The key distinction is that they rely on one or more Third Party Administrators (TPAs) to handle their claims processing. While some of these organizations have their own claims management system, the majority utilize the claim systems provided by their chosen TPA.
These organizations not only self-insure for some of their coverage, but they also handle their claims internally, just like an insurance carrier. They have a dedicated call center that efficiently manages the First Notice of Loss (FNOL) and First Notice of Incident (FNOI) for their policyholders. Claims are then assigned to either a skilled staff adjuster or an independent appraiser. Self-Insured/Self-Administered companies face similar challenges to those faced by insurance carriers.
Challenges faced by self-insured organizations
Self-insured organizations often face resource constraints, with their risk management departments being small and sometimes part of the human resources team. However, despite these limitations, they still require many of the same solutions and technologies that insurance carriers use to stay competitive. Here are a few examples of areas where self-insured organizations may find limited options.
As self-insured organizations do not focus on selling insurance, their requirements for "policy administration" differ from those of insurance carriers. They require the ability to handle multi-policy claims, including tracking which policies were active at the time a claim was made.
In certain instances, like an intergovernmental risk pool that offers self-funded coverage for municipalities within the pool, they might require the identical policy administration capabilities used by insurance carriers.
One of the most common requests we receive from Risk Managers is the need for an advanced analytics platform that allows them to easily generate ad-hoc reports. It may seem like a simple request, but many risk managers currently rely on spreadsheets, often juggling multiple sheets at a time. This can be a challenge for organizations that work with Third Party Administrators (TPAs) as accessing claims data, which is typically stored by the TPA, can be a complex process.
The claims data that is sent to the Risk Manager usually comes in the format used by the claims system(s). Before any analysis can be done, the data needs to be transformed to fit the data format used by the risk manager.
On a monthly or quarterly basis, the Risk Manager faces the challenge of consolidating a wealth of data, including loss reports and reserves, to present at board or management meetings. Without the implementation of a robust RMIS system equipped with advanced analytics and reporting capabilities, this process can become a time-consuming and arduous task.
Self-insured organizations have a wide range of requirements that extend beyond the ones mentioned. These organizations are enthusiastic about embracing technological advancements and innovative solutions that can effectively reduce their insurance expenses while enhancing the level of customer service provided to their employees and members.
The self-insured market offers a fascinating opportunity as it encompasses a wide range of industries. If you possess expertise in one or more of these industries, they provide excellent starting points for exploration and growth.
If you are interested in learning more about the Self-Insured Market, click below to schedule a no-cost Market Research Consultation.