So why might you wish to bring claims handling in house rather than use brokers, third party assessors or an insurance company? Well for starters it’ll probably save you money. What else?
You maintain access to a rich seam of historic data going many years which has benefits when tendering for new insurance.
- You have local knowledge within your insurance team that can be applied to insurance claims
- There is no conflict of interest. Thorough investigation, analysis and local knowledge has the potential to reduce costs and thus premiums
- It can be cheaper to maintain the skills in house. How much do you pay to have claims managed externally?
If you do bring claims in house it could be because you wish to increase excess levels and undertake more self-insurance and there are benefits to this.
The Benefits to Organisations of Self-Insurance and Increasing Excess Levels: Cost Savings, Flexibility, Regulatory Compliance, and Claims Handling
In the ever-evolving world of business, organisations are constantly seeking innovative ways to manage risks and optimize their financial strategies. Two approaches that have gained popularity are self-insurance and increasing excess levels. These methods offer significant benefits, including cost savings, flexibility, regulatory compliance, and improved claims handling. This blog delves into these advantages, supported by a couple of real-world examples.
Cost Savings
Self-Insurance:
Self-insurance involves an organisation setting aside funds to cover potential losses instead of purchasing traditional insurance policies. This method can lead to substantial cost savings, as it eliminates the need to pay premiums to insurance companies. For instance, a UK-based company, XYZ Ltd., decided to self-insure its fleet of vehicles. By doing so, XYZ Ltd. saved approximately £50,000 annually on premiums1. The company allocated these savings to a reserve fund, which was used to cover any vehicle-related claims. Over time, XYZ Ltd. found that the actual claims were significantly lower than the premiums they would have paid, resulting in net savings.
Flexibility
Self-insurance offers unparalleled flexibility. Organisations can tailor their coverage to meet specific needs without being constrained by the limitations of traditional insurance policies. A UK-based tech company, Tech Innovators Ltd., opted for self-insurance to cover employee health benefits. This allowed the company to design a bespoke health plan that included wellness programs and mental health support, which were not covered by standard insurance policies. The flexibility of self-insurance enabled Tech Innovators Ltd. to address the unique needs of their workforce, enhancing employee satisfaction and productivity.
Increasing Excess Levels:
Increasing excess levels provides flexibility in managing insurance costs. Organisations can adjust their excess amounts based on their financial situation and risk tolerance. For instance, a small business owner in Manchester increased the excess on their commercial property insurance to £2,000. This adjustment allowed them to allocate more funds to business expansion while still maintaining adequate coverage. The ability to modify excess levels empowers organisations to balance their insurance expenses with other financial priorities.
Regulatory Compliance
Self-insurance can help organisations comply with regulatory requirements more efficiently. By managing their own risk, companies can ensure that they meet industry-specific standards without relying on external insurers.
Claims Handling
Self-insurance streamlines the claims handling process. Since organisations manage their own funds, they can expedite claim settlements without waiting for external insurers. Boeing established a captive insurance company to manage risks related to aircraft production and delivery which resulted in a number of benefits…
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- Greater control over claims and coverage.
- Tailored risk management for complex manufacturing operations.
- Cost savings by avoiding traditional insurance premiums.
Boeing’s captive model allows it to handle high-value, industry-specific risks more efficiently than external insurers, (Credit Risk management: The Power of Self Insurance in Effective Risk Management – FasterCapital)
Using dedicated claims handling software offers several significant benefits:
- Increased Efficiency and Speed: Automated workflows streamline the entire claims process, allowing for proactive management and reducing the time needed to handle each claim, and improving overall productivity.
- Enhanced Accuracy and Error Reduction: Automation minimizes human errors by verifying data and spotting anomalies early in the process, ensuring consistent and accurate information.
- Improved Customer Experience: Faster processing times and better communication channels (like email, chat, and text) lead to higher customer satisfaction.
- Cost Savings: By automating repetitive tasks, these systems reduce labour costs and operational expenses.
- Advanced Analytics and Insights: Integrated analytics help detect fraud, optimize resource allocation, and provide actionable insights for better decision-making.
- Scalability and Adaptability: These systems can easily adapt to changing needs and scale with the growth of the business.
- Compliance and Reporting: Automated systems ensure compliance with regulations and provide detailed reporting capabilities. Triangulation and fund modelling reports for example, provide financial trend projection.
- Excess modelling: Claims forecasting and cost of claims to the fund help to find optimum excess levels and provide premium forecasts.
Conclusion
Both self-insurance and increasing excess levels offer substantial benefits, including cost savings, flexibility, regulatory compliance, and improved claims handling. By adopting these strategies, organisations can optimize their insurance expenses while maintaining adequate coverage. The real-world examples demonstrate the practical advantages of these approaches, highlighting their potential to enhance financial stability and operational efficiency.
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