Conducting a Feasibility Study

• Traditional group insurance with different deductibles.
• Partially Self-Funded Programs such as retrospective rating and minimum premium plans.

against self-insurance techniques such as :

• An ERISA self-insurance plan with third party administration and stop-loss insurance.
• A Fully Self-Funded Option with no stop-loss.

Note: It is important to be aware of the very high potential cost of some claims, which in worst cases can exceed $1,000,000. Premature births and burns are cases with which high costs are associated and therefore only the largest companies should consider not purchasing any self-insurance.

The Feasibility Study serves only to identify whether a company is a suitable candidate for self-insurance. To further analyse a change to self-insurance the services of a risk management consultant may be required. A study will need to be made by the consultant, which will involve a cost comparison as well as any operational considerations, and these should include:

1. Data Collection. Data concerning all past losses will need to be compiled broken down by location. Details of all large losses will need to be included as well as numbers of employees over the last few years and going forward.
2. Actuarial Analysis. It will be helpful to have an actuary determine the estimated cost to the company for the upcoming policy year and to develop a loss pay-out pattern taking into account recoveries from the specific and aggregate coverage.
3. Financial Analysis. A company will need to take into account all the associated costs to the program including loss costs, claims handling costs, safety and loss control charges, state fees and assessments, specific and aggregate expenses, consulting fees and funding costs.
4. Operational Considerations. The first operational issue to address is whether the claims will be handled internally or outsourced to a professional third party administrator. Generally the latter is preferable as these companies have experience in handling claims and can also negotiate with providers of occupational healthcare to provide discounts on their services.
5. Management Approval. Following a written and verbal report managerial approval is required in order to move to the next step.