Self Insured Retention FAQs
What is a self insured
program and how does it work?
Why would a healthcare organization choose to self
insure?
What kind of
savings can I expect from self-insurance?
How do I know
if my organization is ready to self insure?
How does my
company make the transition to self-insurance?
How does excess coverage provide financial
protection?
How much
excess coverage does my organization need?
What is a self insured
retention (SIR)?
How
do we know how much to set aside for claims?
The decision to move to self insurance means that a
healthcare organization has taken on the responsibility for paying
its own claims, rather than purchasing a primary insurance
policy. As a self insured entity, the organization creates
and manages a self insured trust, using dollars that would
otherwise be paid towards primary insurance premiums. This
self insured trust is then used to pay claims. The
amount of financial risk taken in a self insured program can vary
across organizations, and many chose to limit their risk
by transfering a portion of their risk by purchasing
healthcare professional liability excess insurance.
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Healthcare facilities may choose to self insure for a variety of
reasons. In our experience, we have found they are typically
seeking to:
- Lower overall professional liability costs
- Improve cash flow
- Maintain better control over
professional liability claims
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Savings vary across different healthcare organizations and are
dependent upon your organization's previous claims experience, risk
tolerance, and risk appetite.
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Our experience has shown us that there are certain indicators that
an organization considering the transition to self insurance should
consider. We recommend using our Are you ready to self insure?
Checklist as a resource.
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- Assign internal management responsibilities
- Contact your broker
- Analyze loss history and complete a feasibility study
- Conduct an actuarial loss funding study
- Review state regulations and complete a state application, if required
- Select a third party administrator (TPA) for claims administration or set up a claims process for self administration
- Select and partner with an excess
professional liability carrier, such as BerkleyMed
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Specific excess coverage is designed to protect a healthcare
organization from unexpected high-cost claims due to a single
incident.
Aggregate excess coverage places a
limit on the amount a healthcare organization pays for all claims
incurred during a given time period. So, if a facility has a
year in which it experiences more than the anticipated level of
claims activity, it is protected.
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Healthcare organizations that self insure limit the amount of
financial risk they have by purchasing excess insurance. This
coverage places a cap on how much the organization pays for claims
resulting from a single incident or during a specific time period,
such as a year. Your broker can assist in evaluating the
appropriate level of excess limits that should be purchased.
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The SIR is an amount the self insured organization will pay before
excess insurance begins paying. The amount is negotiated by
the facility and the excess insurance company. (The SIR is also
sometimes referred to as the "specific retention.") It is usually
stated in increments of $250,000. Example SIR amounts -
$500,000, $750,000, $1,000,000, $1,250,000, etc.
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Your broker and consulting actuary will analyze your loss history
and help you establish appropriate self insured retention (SIR) and
funding.
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