Liability Coverage—Types of Liability Coverage

 

Like primary liability insurance, excess liability insurance normally comes with one of two coverage triggers: claims-made or occurrence. Under an occurrence policy, losses that arise from occurrences that take place during the policy period are covered. There usually is no time limit on when a claim can be made under the policy as long as it results from an occurrence that took place during the policy period. The insurance industry became painfully aware of this fact during the 1980s when asbestosis claims were made against occurrence policies which were written as far back as the late 1920s.

 

The second form of excess liability insurance is claims-made coverage. In its most restrictive form, a claims-made policy only covers a claim if the occurrence causing the claim takes place during the policy period and the claim also is made during the policy period. Most policies say that a claim is made if the insured or the insurer has been notified about it. Some policies are so restrictive that the claim not only has to be made against the insured during the policy period, but it also must be reported to the insurer during the policy period in order for coverage to be triggered. This is called a claims-made and reported form. Each claims-made policy should be reviewed carefully for details on what constitutes an occurrence, what constitutes a claim, and under what circumstances coverage is triggered.

To illustrate how a standard claims-made policy functions, assume that Johnson Widget company has a claims-made policy that is effective July 1, 2014, and is in effect for one year. Three claims occur:

 

 

1. Claim 1 is the result of a customer slipping at company headquarters on June 3, 2014. A claim is made on July 7, 2014. It would not be covered because the event occurred before the claims-made policy went into effect.

 

2. Claim 2 is the result of a customer being injured by a defective widget on September 1, 2014; the claim is filed on December 4, 2014. This claim is covered (subject, of course, to any applicable policy coverage exclusions); both the event and the claim occurred during the policy period.

 

3. Claim 3 is the result of mental anguish suffered by a customer when he was humiliated by a sales person at the customer's office. The incident occurred on June 30, 2015, but the claim is not made until September 16, 2015. Although the incident occurred during the policy period, it is not covered because the claim was made after the policy expired.

 

Most claims-made policies are not as restrictive as the policy cited above. Many include a retroactive provision that permits coverage for claims made during the policy that are the result of events that take place during a specified time period prior to a policy's effective date. If Johnson Widget had a one-year retroactive endorsement with a date of July 1, 2013, Claim 1 would be covered. The event causing the loss occurred between the retroactive date of July 1, 2013, and policy expiration of July 1, 2014, and the claim was filed during the policy period.

 

This type of policy probably would not respond if the insured knew about the June 3 incident but failed to report it to the insurer of record at that time. Again, each policy dictates the requirements for reporting incidents and claims.

 

Another endorsement is available to make coverage available for claims that are made after a claims-made policy expires. This is known as an extended reporting period (ERP) or tail coverage. When an insured discontinues claims-made coverage or switches from a claims-made to an occurrence form, insurance for events that occurred during the claims-made policy(ies) ceases. If an event that occurred during a claims-made period is reported as a claim after the policy expires, there would be no coverage. Insureds purchase a tail coverage for such situations. If Johnson Widget had a one-year tail coverage endorsement, claim 3 would be covered because the event occurred during the policy period and a claim was brought within the tail coverage period.

 

Once again, forms differ in the application of tail coverage. They must be read carefully for a clear understanding on how each policy would apply to various events and claims arising from them.

 

It can be financially dangerous to switch between occurrence and claims-made policies. Since most claims-made policies do not provide an unlimited retroactive endorsement and may charge a very high premium for a long-tail coverage endorsement, gaps in coverage can occur when switching types of policies. Many claims-made policies include an automatic thirty-day extended reporting period. However, these same carriers may charge up to 200 percent or more of the policy premium for a longer ERP. Claims-made policies often include a provision that sets the ERP pricing when the policy first is purchased.

 

Note that ERP's do not extend the policy period or the coverage. They provide only an extension of the time in which a claim may be reported.

 

Many insurance companies favor claims-made contracts because they permit insurers to restrict their liability to events that occur within the policy time frame. On the other hand, insureds want liability policies that cover injuries that occur during a policy period regardless of when the claim is actually made.

 

Liability Coverage—Self-Insured Retention (SIR)

 

Under a self-insured retention (SIR) plan, an excess insurer usually does not provide services such as claim handling and record keeping for losses that fall within the retention. This is one of the provisions that distinguishes a true SIR from a deductible. An SIR may apply to individual losses, (either per occurrence or per claim), or it may apply to all losses on an aggregate basis within a specific time period.

 

In third-party liability cases, a self-insurer may be expected to pay its SIR directly to a third-party claimant or pay its own investigators and legal defense counsel, or provide money up to the amount of the SIR to allow the insurer to use to pay third parties. The self-insured and the excess insurer set up the method for payment of costs that fall within the SIR when the coverage is arranged.

 

A self-insured retention is not insurance. As the District Court for the District of Utah said in State Farm Fire & Cas. Co. v. Corp. of President of Church of Jesus Christ of Latter-Day Saints, No. 2:13CV233DAK, 2015 WL 222323 (D. Utah Jan. 14, 2015), an insured with a self-insured retention retains its own risks for the amount agreed. A retained limit simply establishes the point at which the umbrella insurer, not the insured, agrees it will provide coverage . As a result, the existence of a self-insured retention, has no effect on the policy's “other insurance clause.” Actual contractual insurance takes precedence, therefore, over a self-insured retention.

 

Most discussions of excess coverage focus on the coverage written in excess of an SIR or a deductible.

 

Liability Coverage—Specific Excess

 

It is not practical to list all the names insurance companies give to their particular excess contracts. Often the terminology is confusing. Some companies refer to their excess coverage as excess reinsurance coverage. This is a misnomer since it is not reinsurance but coverage in excess of a specified retention amount. Some excess contracts are called excess indemnity agreements. Although the term insurance does not appear in these titles, they also are excess insurance contracts.

 

Regardless of the terminology, there are two basic types of excess coverage found in the property and casualty area: specific excess and aggregate excess coverage. These contracts normally are written on an annual basis.

 

 

Excess coverage is based on the premise that the self-insurer takes a layer of each exposure (the SIR) and the excess carrier provides a layer of coverage above the SIR. There usually are several excess insurers who provide layers of coverage for large exposures. The layers usually are denominated in millions of dollars.

 

Specific excess coverage pays for losses over a predetermined amount on either a per-accident or per-occurrence basis. Suppose XYZ Company decides to retain $100,000 per occurrence for workers compensation losses. XYZ could purchase a specific excess policy which would pay $1,000,000 in excess of the $100,000 SIR. The $1,000,000 would be known as a layer of coverage. XYZ might purchase another $10,000,000 excess layer from a second excess insurer. This layer would be excess of the SIR of $100,000 and the first layer of $1,000,000.

 

Additional layers could be purchased, but assume that XYZ chooses not to do this. If a loss over $11,100,000 occurs, XYZ would be obligated to pay any sum over the available $11,000,000 in excess insurance. Since there is no insurer covering layers above $11,100,000 XYZ is uninsured for any loss over $11,100,000. Note that each layer is excess of the sum of the limits of the previous layer.

 

For a $12,400,000 loss, XYZ pays $1,400,000 (its $100,000 SIR plus the $1,300,000 in excess of the specific excess policy coverage limit). It may be difficult to envision a $12,400,000 loss from one occurrence, but a multi-victim occurrence is possible. The limits in such programs usually are established based on the history of the account and the amount of money the insured can fund within given time periods. In recent times multi-million and even billion dollar judgments have been entered in state and federal courts for major injuries or class actions. It is essential, therefore, for the insured and the insured's broker to consider and establish the exposure faced and the number of layers of insurance required. Obviously an insured like Boeing faces a greater exposure and needs higher limits than a neighborhood restaurant.

 

The cost of layers declines as the limits increase. The first $1,000,000 layer of excess coverage will cost more per $1,000,000 of coverage than the second $10,000,000 layer costs per million. This is logical. The probability of a loss occurring under the second excess insurer's policy is less than the probability of loss occurring under that of the first excess carrier.

 

Specific excess coverage, if purchased with high enough limits, would protect XYZ against most large losses arising from a particular occurrence. It would not, however, protect XYZ Company against an unexpectedly high number of losses equal to or less than the individual SIR or against those few losses that exceed the specific excess coverage. When an insured wants to retain a lower dollar amount of claims, it must buy layers of coverage.

 

Layering of coverage is desirable from a self-insurer's perspective because it does not have to rely on just one insurance company. When coverage is placed with just one insurance company, there always is the possibility of that insurers' insolvency eliminating all coverage. Layering avoids this concentration. However, layering does have at least one disadvantage. In the event of a loss, excess carriers may disagree on their exact liability. This can result in extensive litigation. Careful review of all forms for consistency before coverage is placed may alleviate this potential for disagreements. To avoid confusion it is helpful if all of the layers are written on the same policy wording referred to generally as “follow form” or “following form” excess policies.

 

Sometimes, self-insurers may be forced to purchase excess coverage from multiple insurers because of the type of their exposures or general market conditions. Pricing also may be a factor in how many layers are required.

 

Liability Coverage—Aggregate Excess Coverage

 

To avoid paying losses in excess of XYZ's desired limit of, for example, $800,000, XYZ can purchase an aggregate excess contract. Aggregate excess coverage insures against aggregate losses exceeding some predetermined limit, usually during a twelve-month period. The coverage trigger on an aggregate excess policy can be a stated dollar amount or a percentage of premium.

 

Self-insurers should develop a mechanism for signaling when the specific and aggregate excess insurers should be notified of claims that might trigger their coverage. Because of the penalties in some excess policies for not reporting claims promptly, it is very important to have a dependable system for recording loss data. Most policies include conditions that state the type of losses that must be reported.

 

Another item that may or may not erode the aggregate is allocated loss adjustment expenses. Again, each contractual agreement is different.

 

There is an interaction between the SIR and the specific and aggregate excess exposure to loss. As the size of the SIR undertaken by the insured increases, the specific excess insurer's exposure decreases and the aggregate excess insurer's exposure increases.

 

Policy Requirements

 

There are several aspects of excess coverage that affect the amount of coverage provided an insured and the methods of handling claims:

 

1. Claim Payments.

2. Claim Notification.

3. Underlying Coverage Notice.

4. Insolvency of Underlying Insurer.

5. Cancellation.

 

A typical excess policy makes the insured responsible for “the investigation, settlement, defense and appeal of any claim made, or suit brought, or proceeding instituted against…” it.

This section of the policy emphasizes the importance of handling claims in-house efficiently or retaining a service company able to provide the required claims information. The claims settlement cost is included in the policy's definition of “loss;” therefore, any expense incurred by the self-insured group in handling claims is covered by the policy.

A self-insurer must work closely with its excess carrier when handling claims. A typical policy states that if the insured (self-insured) does not properly notify the excess insurer of losses, its retention will be increased and the policy limits will be decreased. If notice is provided more than one year but less than three years after it should be provided, the insured has to retain an additional 15 percent of the loss. This is in addition to the dollar amount of retention stated in the policy. If notice is more than three years late, the retention increases by an additional 40 percent. In addition most excess policies require an immediate report of loss if the exposure to loss or judgment is equal to one half of the SIR or the underlying layer of coverage.

 

As discussed earlier, an insured may have several layers of coverage, each layer being offered by a different insurer. Many excess policies require that if there are underlying layers of coverage, the layers must be maintained. If for some reason an underlying layer of coverage is changed, canceled, or not renewed, the insured is required to notify the insurer, who may have the right to cancel its coverage. A significant change might involve switching the underlying policy, changing from an occurrence policy to a claims-made policy or vice versa, a lowering of limits, or a modification of who is an insured.

 

Assume Brown Bag Manufacturing Company has an SIR of $400,000, an excess policy with Insurer A that provides $500,000 of coverage excess of $400,000 and an excess policy with Insurer B which provides $1,100,000 of coverage excess of $900,000. Most excess policies require that Insurer B be notified by the insured if Insurer A cancels its coverage. Some insurers offer an amendment that allows a self-insured to keep excess coverage, even if an underlying layer of coverage is canceled.

 

Brown Bag Manufacturing has two excess insurers in the previous example. What happens if Insurer A becomes insolvent? Who pays the claims that would have been covered by Insurer A? This is a question with which courts have wrestled for many years. To illustrate, assume Brown Bag Manufacturing has a loss of $600,000 and Insurer A is insolvent. If excess insurers were required to drop down, Insurer B would have to pay the $200,000 that was Insurer A's responsibility ($600,000 loss minus $400,000 SIR). However, in the majority of jurisdictions Insurer B would pay nothing, as courts typically find that if an underlying insurer becomes insolvent the insurer at the next layer is not required to drop down to cover losses.

 

In Caldwell Freight Lines, Inc. v. Lumbermens Mut. Cas. Co., Inc., 947 So.2d 948 (Miss. 2007), an insured sought reimbursement from his excess liability insurer based on the theory that the primary insurer's insolvency required the excess insurer to drop down and provide primary coverage for an auto accident. The court held that the excess policy did not provide drop-down coverage. The court explained that the term “sums actually payable” in the policy requiring the excess insurer to pay only the amount in excess of the sums actually payable under the terms of the underlying insurance referred to the primary policy limit, not to the actual amount the insolvent primary insurer was able to pay. Thus, the excess policy did not drop down to primary coverage, even though the excess policy lacked a loss payable provision stating that liability did not attach prior to the payment of primary policy limits. The policy made the excess insurer liable in the event of the primary insurer's insolvency only to the extent the excess insurer would otherwise have been liable.

In addition, the “Other Insurance” provision of the excess policy did not make the insurer liable for all the amounts in excess of the Insurance Guaranty Association's (IGA) payment. The court explained that interpreting the “Other Insurance” clause as implying a duty to provide “drop down” coverage would not only contradict the specific policy provisions, but it would also contradict state law, which said “drop down” coverage would not be found unless the policy expressly provided for such coverage.

 

The idea is further explained in Irvin E. Shermer and William Schermer, 2 Auto.Liability Ins. § 18:12 [4th Ed.2005]: “Unless insolvency coverage is an express exception, most excess coverage policies clearly condition the obligation of the excess carrier to provide coverage only upon the exhaustion of the primary carrier's limits by payment of claims against the primary coverage, and where this condition is expressed, the courts have ruled that the insolvency of the primary carrier does not activate excess coverage. Further, the reason that a pure excess insurance carrier is not required to drop down in the event of the primary insurer's insolvency is two-fold: insolvency of the underlying insurer(s) is usually not regarded as an 'occurrence' as defined by most insurance policies, and excess insurers charge low premiums in exchange for placing the burden of retaining a financially stable primary insurer upon the insured. Put simply, excess insurers are not the guarantors of the solvency of underlying insurers. Furthermore, excess insurance is to protect the insured against excess liability claims, not to insure against the underlying insurer's insolvency.”

 

On the other hand, the Fifth Circuit has indicated, for instance, that excess insurers charge relatively low premiums precisely because “the duty to defend rests primarily on the primary insurer.” Harville v. Twin City Fire Ins. Co., 885 F.2d 276, 279 (5th Cir.1989). The inexpensive premiums reflect an excess insurer's desire to limit its exposure and the insured's willingness to take on the corresponding level of risk. The Fifth Circuit has further stated that “[i]f excess liability carriers are required to defend in cases where the primary carrier would have defended except for insolvency, then the risk of the primary insurer's insolvency is placed on the excess carrier.” [Lamarque Ford, Inc. v. Fed. Ins. Co., No. 10-4355, 2011 WL 2020566 (E.D. La. May 24. 2011]

 

 

This is at odds with the idea that “[e]xcess insurers are not required to scrutinize primary insurers' financial stability … or to guarantee that the insured's choice of primary carriers will always be sound.” Steve D. Thompson Trucking, Inc. v. Twin City Fire Ins. Co., 832 F.2d 309(5th Cir.1987).

 

 

Of course decisions may vary based on jurisdiction and policy language because standard policies are not always used. (Although there is no equivalent to the primary insurance market's Insurance Services Office in the excess market, many excess insurance companies use fairly standard contracts. However, a substantial number use manuscript policies or endorsements that are designed together by the insured and the insurance company.) To counteract even the possibility that an insurer would be ordered to drop down in the case of the insolvency of an underlying insurer, some insurance companies attach a non-drop down endorsement to their policies. Such an endorsement states that the policy to which it is attached will not drop down to cover the layer provided by an insolvent insurer.

Like most insurance policies, excess contracts can be canceled by either party under certain circumstances. State laws may require that a policy contain a special cancellation endorsement. The endorsement stipulates that a policy cannot be canceled unless a state agency has been given notice of the impending cancellation. This is frequently the case in workers compensation because it is statutory coverage. State statutes also control the notice requirements for cancellation of third party liability and first party property policies requiring that the insurer be familiar with the local statutes relating to cancellation and non-renewal before attempting to cancel or non-renew a policy.

 

Most states require that companies either purchase workers compensation insurance or become qualified self-insurers. As part of the self-insurance approval process, excess insurance, bonding, and collateral requirements are set in an effort to guarantee that long-tail workers compensation losses retained by the self-insured will be paid, even if the self-insured should encounter financial difficulties.

 

The cancellation endorsement usually stipulates that the insurer cannot cancel the excess policy without first giving the appropriate regulatory agency sixty days' notice (thirty days in some states). The endorsement usually stipulates that the notification must be transmitted by certified or registered mail. If the insurer cancels the policy, the insured is refunded a proportional share of its premium. For instance, if a one-year policy is canceled after six months, one half of the premium would be returned. When the insured cancels the policy, a short rate table is used to calculate the premium refund.

 

Surplus Lines Companies

 

Whenever possible, excess coverage should be placed in the standard admitted insurance market. The standard market for a particular state is made up of insurance companies that are licensed or otherwise admitted to write insurance in that state. However, occasionally coverage cannot be purchased from a licensed company. Often this is because the self-insured has a risk exposure that causes standard insurance companies to refuse to insure it. In other cases, general insurance market conditions cause insurers to exit a particular line of coverage. If a licensed insurance company cannot be found to provide coverage, it usually can be purchased from a surplus lines or nonadmitted company. (Most states require that the insurance be turned down by several licensed insurance companies, usually three, before it can be placed in the surplus lines market.)

 

A surplus lines insurance company is one that is not licensed to do business in a particular state, but which is allowed to sell coverage in that state through a licensed surplus lines broker. When purchasing coverage from a surplus lines broker, it is important to determine the entire cost of coverage. Sometimes coverage is quoted net of taxes and fees, which can be substantial.

 

Working with an Excess Insurer

 

Although excess coverage often is written through an agent or broker, a self-insurer must maintain a good working relationship with its excess carrier in order to avoid claim-handling and policy renewal problems.

It is unwise to move from one excess carrier to another in exchange for a small reduction in premium. A self-insurer who moves frequently may find it difficult to purchase excess coverage.

 

Cost of Excess Coverage

 

It is impossible to forecast accurately the cost of excess insurance coverage, but generally excess coverage premiums for all types of risks average 4 percent of the total self-insured expenses. (The average cost for workers compensation excess insurance can be higher.) Costs vary based on the type of risks involved, the financial strength of the insurer, the type of excess coverage purchased, the limits of the coverage, and insurance market conditions. While 4 percent is an average, costs could be as low as 0.5 percent of self-insured expenses or as high as 11 percent.

 

Selecting an Excess Insurer

 

Solvency has become a key factor in the selection of an excess insurance company. The insolvency in the late 1980s of Mission Insurance Company, which wrote excess coverage, created a significant number of gaps in excess insurance programs and produced millions of dollars in litigation expenses. There are no guarantees that an excess insurer will not become insolvent. However, there are some ways to estimate the financial soundness of an excess insurer.

 

One method is to determine whether an excess insurer's financial condition satisfies the Insurance Regulatory Information System (IRIS) ratios. The IRIS ratios were developed by the National Association of Insurance Commissioners (NAIC) as an attempt to spot insurance companies having financial difficulties.

 

The NAIC calculates the mean and adjusted values for the ratios for the insurance industry. The fact that an insurer passes all of the ratio tests does not guarantee that the insurer is solvent, but it is a starting point for evaluating that company. By the same token, an insurer's failing to meet some of the ratios does not necessarily mean that it is in financial trouble. There are legitimate reasons for sound companies to deviate from some ratios. Such a deviation should be interpreted as a signal to investigate the company more thoroughly and not as a warning to avoid it.

 

A firm purchasing excess coverage also can turn to one of the rating services for an insurer evaluation. These services include: A. M. Best, Weiss Research, Moody Investor Service, and Standard and Poor's. Standard and Poor's includes Lloyd's of London syndicates in addition to companies licensed in the United States.

 

A high rating does not necessarily mean that an insurer is financially sound. Insurers may be insolvent and still receive a good rating. This occurs because:

 

1. There can be a lag between the time represented by accounting data used to determine a rating and the time the rating is issued;

2. Some insolvencies are the result of fraud, which is not always obvious when the insurer's books are reviewed;

3. Some insolvencies occur because a company is not able to collect from its reinsurers and such a weakness in a reinsurance portfolio is not always apparent;

4. A rating service is not always able to ascertain the quality of an insurer's management, as, for example, the extensive use of uncontrolled managing general agents; or

5. An insurer's financial statement does not always indicate problems extraneous to the insurer that may develop in the future; the decline in the junk bond and real estate markets in the late 1980s and early 1990s are examples.

 

It may be wise to check with more than one rating service since their conclusions are not always the same.

 

Nonadmitted Companies

 

Excess coverage can be purchased from the following:

 

1. A domestic insurance company—one that is domiciled and licensed in a state;

2. A foreign company—one that is domiciled in another state. (If the foreign company is licensed in a state in which it is not domiciled, it is called an admitted foreign company; if not, it is a nonadmitted company.); or

3. An alien insurance company—one that is domiciled in another country. If it is licensed in a state, it is called an admitted alien insurance company in that state; if not, it is a nonadmitted alien insurance company.

 

An example makes the distinctions clear. If Rock Solid Insurance Company (RSIC) is domiciled in Georgia (i.e. it was chartered in Georgia), it is a Georgia domestic company. If RSIC is licensed in Florida, it is an admitted foreign insurer in Florida. If it is not licensed in Alabama, it is a nonadmitted insurer in Alabama.

 

Assume RSIC has a foreign subsidiary, Slippery Rock Limited, which is domiciled in Denmark and licensed only in one state, Georgia. In Georgia, Slippery Rock is an admitted alien insurer; in Alabama it is a nonadmitted alien insurer.

 

It is usually easy to locate information and ratings about admitted foreign, admitted alien, and domestic insurance companies from state insurance departments or one of the services mentioned previously. It is more difficult to locate information about nonadmitted alien insurers. Therefore, placing business with an alien insurer can be very risky. One solution is to contact the National Association of Insurance Commissioners (NAIC). The NAIC maintains a list of companies that have fulfilled the criteria of the International Insurers Department Plan of Operation. These insurers have deposited funds in the United States to protect their policyholders. The deposit varies depending on the insurance company but is subject to a minimum of $100 million. The publication can be obtained by contacting the following:

 

Publications Department,

National Association of Insurance Commissioners

2301 McGee St., Suite 800

Kansas City, MO 64108-2662

(816) 842-3600

http://www.naic.org

 

The fact that an insurer is on the list does not guarantee that it is solvent. However, it does mean that it has deposits in the United States to protect its policyholders.

 

Property Coverage—Deductibles

 

As deductibles continue to grow larger over the years, the difference between them and self-insurance blurs. It is helpful to understand primary property insurance deductibles when exploring property self-insurance.

 

Unlike liability insurance contracts, property contracts usually contain deductibles. High deductibles can serve the same purpose as the layering of liability coverage.

 

In IMO Industries Inc. v. Transamerica Corp., 101 A. 3d 1085 (N.J. App. Div. 2014) the court explained that New Jersey courts have recognized that an insured's deductible erodes the policy limits. See Benjamin Moore & Co. v. Aetna Cas. & Sur. Co., 843 A.2d 1094 (N.J. 2004); cf. Am. Nurses Ass'n v. Passaic Gen. Hos., 484 A.2d 670 (N.J. 1984) (explaining why a deductible does not constitute “other insurance”). On the other hand, federal courts have stated clearly that a SIR does not reduce the limits of an insurance policy. In In re September 11th Liability Insurance Coverage Cases, 333 F.Supp.2d 111 (S.D.N.Y.2004), the United States District Court explained the distinction between SIRs and deductibles:

 

A SIR differs from a deductible in that a SIR is an amount that an insured retains and covers before insurance coverage begins to apply. Once a SIR is satisfied, the insurer is then liable for amounts exceeding the retention, less any agreed deductible. Barry R. Ostrager & Thomas R. Newman, Handbook on Insurance Coverage Disputes § 13.13[a] (12th ed. vol.2, 2004)…. In contrast, a deductible is an amount that an insurer subtracts from a policy amount, reducing the amount of insurance. With a deductible, the insurer has the liability and defense risk from the beginning and then deducts the deductible amount from the insured coverage.

Property Coverage—Easing into Self-Insurance

 

One approach to developing a property self-insurance program is to start by retaining a portion of the risk on the more stable property lines. The SIR in that line can be gradually increased before progressing to self-insurance in the casualty or employee benefits areas.

The coverage purchased can vary periodically or it can remain constant from year to year. This flexibility allows the new self-insurer time to both develop expertise and decide if self-insurance is amenable to its operation.