Specific and Aggregate Insurance - How it Works

2.1. Specific Coverage

Specific coverage is designed to protect an employer from claims arising from a single occurrence. This is different from employee benefits coverage, which responds on an each and every person basis as in the event of an accident in the workplace involving one or more employees all claims are added together.

As negotiated the employer will only be responsible for its' self-insured retention which can vary between $50,000 and $500,000 and any amount excess of this is passed to the Excess Insurer. As well as ensuring that the self-insured retention is not too large in relation to the company's finances or appetite for risk the employer will need to be comfortable that sufficient coverage is purchased. 

Many excess insurers offer statutory coverage, which has no upper limit, however the self-insurer may be able to obtain a cost saving by purchasing a lower limit. The decision over the amount of coverage to be purchased will involve looking at potential exposures, past losses and accumulations of employees or put another way the maximum number that could be involved in a loss.

It is however normally prudent for self-insurers to err on the side of caution and purchase statutory coverage if this is available or failing that as much specific coverage as possible.

2.2. Aggregate Coverage

Aggregate coverage reimburses the self-insured employer in that the total paid losses in any one policy period exceed a pre-determined amount otherwise known as the loss fund. Unlike Specific coverage, which responds on a per occurrence basis, the aggregate protection responds to an accumulation of individual losses. For this reason the losses are much more predictable and a finite limit can be attached to the coverage in terms of how much the policy will pay in any one year.

The attachment point is usually expressed as a percentage of the loss fund, which is the total amount of all claims that are projected to occur in the policy period after any recoveries from the specific coverage. The loss fund is normally calculated as a dollar amount but can be expressed as a percentage of manual premium with a 100% loss fund being equal to manual premium.

Loss funds normally have a minimum dollar amount that applies regardless of any drop in payroll although this is often expressed as a percentage to give the employer some flexibility.