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Larger Companies Self Insurance (P&C, Health, Etc.)
Posted on 7/19/15 at 8:28 pm
Posted on 7/19/15 at 8:28 pm
I've been doing some research on the insurance industry and have been amazed at how common self insuring risk appears to be for larger companies. Am I missing something or does pretty much every major company self insure their health plans and a majority self insure general liability and workers comp? I understand they purchase other insurance as a "stop loss" but I would have never guessed self insurance would be this common.
I am familiar with a self insurance fund that pays dividends out on excess premium at the end of the year. Here the insured pays a monthly premium into the fund and goes through an agent. In the grand scheme of things, it's really no different than standard insurance. I believe that this "self insurance" by corporations is different than what I just described. Am I right in that thought?
The largest 15 p&c brokers write 43% of the business in commercial insurance. These major brokers aren't writing the mom and pop shops in Baton Rouge; they have to be writing insurance for bigger companies to accumulate that kind of premiums. Right? What am I missing? How are the top 5 companies writing 6bn, 5bn, 2bn, 1.2bn, and 1bn respectively? LINK
I am familiar with a self insurance fund that pays dividends out on excess premium at the end of the year. Here the insured pays a monthly premium into the fund and goes through an agent. In the grand scheme of things, it's really no different than standard insurance. I believe that this "self insurance" by corporations is different than what I just described. Am I right in that thought?
The largest 15 p&c brokers write 43% of the business in commercial insurance. These major brokers aren't writing the mom and pop shops in Baton Rouge; they have to be writing insurance for bigger companies to accumulate that kind of premiums. Right? What am I missing? How are the top 5 companies writing 6bn, 5bn, 2bn, 1.2bn, and 1bn respectively? LINK
2
Posted on 7/20/15 at 9:46 am to TheDirty1
I have some experience with employee benefits self-insurance.
There are essentially, from my view, two types of health insurance self-insured setups.
1) Large companies (which isn't large like you might think, I've seen as few as 300 lives have a self-insured plan) simply use it as a way to control how much premium they have to pay. The claims experience of their pool may be better than the claims experience of the general population of an insurance company. In these types of arrangements, they are getting the same policy (i.e. same co-pays, network, benefits, etc) that is available on other employee benefit plans sold by that insurance companny, what is being controlled is the cost.
2) Once you get over say 1500 lives, you see plans actually start to be customized in terms of co-pays, benefits, network, etc. Now, you have multiple levers you can push in order to control costs.
In any event, a self-insured plan still uses a health insurance company to administer the plan, etc... so say Aetna is used. Aetna is still making money off of the plan by charging admin fees. In non self-funded plans, Aetna basically does the same thing... but the admin fees are not seperated from the premium in the eyes of the insured.
And yes, they all re-insure either directly by purchasing re-insurance on the outside market to reimburse them for excess payouts, or, they pay a little more to the insurance company, who will step in and pay benefits directly once a certain limit is reached.
There are some tax filings and administrative filings that are required for the plan.
There are essentially, from my view, two types of health insurance self-insured setups.
1) Large companies (which isn't large like you might think, I've seen as few as 300 lives have a self-insured plan) simply use it as a way to control how much premium they have to pay. The claims experience of their pool may be better than the claims experience of the general population of an insurance company. In these types of arrangements, they are getting the same policy (i.e. same co-pays, network, benefits, etc) that is available on other employee benefit plans sold by that insurance companny, what is being controlled is the cost.
2) Once you get over say 1500 lives, you see plans actually start to be customized in terms of co-pays, benefits, network, etc. Now, you have multiple levers you can push in order to control costs.
In any event, a self-insured plan still uses a health insurance company to administer the plan, etc... so say Aetna is used. Aetna is still making money off of the plan by charging admin fees. In non self-funded plans, Aetna basically does the same thing... but the admin fees are not seperated from the premium in the eyes of the insured.
And yes, they all re-insure either directly by purchasing re-insurance on the outside market to reimburse them for excess payouts, or, they pay a little more to the insurance company, who will step in and pay benefits directly once a certain limit is reached.
There are some tax filings and administrative filings that are required for the plan.
Posted on 7/20/15 at 4:21 pm to EA6B
Thank y'all for the reply. All of this is spot on with what I've been reading. I have also seen that they are looking at writing new legislation that would keep smaller companies from doing this. Pretty much, forcing people to the health care exchanges.
Sears Holdings and Darden Restaurants are moving their employees to a private health exchange. (Close to 500k employees) What do y'all think about this? Will it be more common in the future? I've read that quite a few larger companies are exploring this option and maybe swapping over as soon as 2016.
Are y'all in health insurance? (Or insurance period?)
Sears Holdings and Darden Restaurants are moving their employees to a private health exchange. (Close to 500k employees) What do y'all think about this? Will it be more common in the future? I've read that quite a few larger companies are exploring this option and maybe swapping over as soon as 2016.
Are y'all in health insurance? (Or insurance period?)
Posted on 7/20/15 at 6:16 pm to TheDirty1
P/C self insurance takes many forms. Different than health insurance for sure. One could participate in an offshore captive for example. One could create their own captive.
One could merely buy a large (e.g. $1MM) all lines deductible, or have a large self insured retention. A lot of municipalities that are large enough would self insure general liability, Auto liability and worker's compensation, although if prudent, they purchase excess above their fund, or at some logical dollar amount for both.
Few companies 100% self insure their property casualty. Especially the property.
The largest brokers all have program business. Alliant has a program for government property and parking as an example. Many have captives, rent a captives etc for off shore oil rigs, and other unique larger risks. Foreign exposures. Kidnap, ransom. The list is almost infinite. AON writes a lot of state's underground storage guaranty funds. Mostly insolvent, but they write them.
Even partially self funded health insurance isn't 100% self insured, nor is self insured health insurance as some CFO or risk manager somewhere should have enough smarts to purchase excess and/or stop gap.
As an aside, insurance and risk management items are one thing I always look for in annual reports. Especially smaller caps. Also as an aside, insurance companies, especially property casualty insurers are hugely seasonal in their earnings, and one can channel their stocks with eerily accurate results. Mostly the regional carriers where losses are more predictable due to geographic spread and the book of business is more main street.
One could merely buy a large (e.g. $1MM) all lines deductible, or have a large self insured retention. A lot of municipalities that are large enough would self insure general liability, Auto liability and worker's compensation, although if prudent, they purchase excess above their fund, or at some logical dollar amount for both.
Few companies 100% self insure their property casualty. Especially the property.
The largest brokers all have program business. Alliant has a program for government property and parking as an example. Many have captives, rent a captives etc for off shore oil rigs, and other unique larger risks. Foreign exposures. Kidnap, ransom. The list is almost infinite. AON writes a lot of state's underground storage guaranty funds. Mostly insolvent, but they write them.
Even partially self funded health insurance isn't 100% self insured, nor is self insured health insurance as some CFO or risk manager somewhere should have enough smarts to purchase excess and/or stop gap.
As an aside, insurance and risk management items are one thing I always look for in annual reports. Especially smaller caps. Also as an aside, insurance companies, especially property casualty insurers are hugely seasonal in their earnings, and one can channel their stocks with eerily accurate results. Mostly the regional carriers where losses are more predictable due to geographic spread and the book of business is more main street.
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