|
Myths
of self insurance
By Josh Ring
El Dorado Insurance
One of the most common questions I am asked is �How can I compete against the �nationals� (i.e. � Securitas, Wackenhut, Allied Barton) when their expenses are so much lower than mine?� In my experience, the common perception is that these large firms pay so little in insurance that it gives them a huge competitive advantage over the regional security company.
The thought is that these national firms �self-insure� by having a well-funded bank account to pay out any insurance claims that are brought against them.
This simply is not true. In fact, self-insurance is an expensive, time-consuming and potentially dangerous path for any company to venture down. A captive insurance company is defined as any insurance carrier that is owned by the insured(s). By owning the insurance carrier, this allows corporations to design insurance programs to meet their specific needs. However, these captive companies require considerable capital to set up, as well as a dedicated staff to administer the funds and legal filings associated with any insurer, considerably increasing the daily expenses related to insurance. Captive insurance companies can also cause contractual issues for their insureds. If a security firm has entered into a contract that requires insurance carriers of a certain AM Best rating, then a captive insurance carrier would not meet these requirements, as they are unrated.
Finally, and most importantly, is the potential for inadequate loss reserves. When actual losses exceed expected levels, captives will require that additional funds be allocated. In this case, the captive insurance policy holder (the individual security firm) would be liable and would suffer severe financial consequences. To restate, if a claim or series of claims exceeds the reserves set up in the captive company, the individual firm or firms who own the captive will be held responsible for all money due. The ramifications of this could easily bankrupt the firms participating in a captive insurer.
It is for these reasons that larger firms do not pursue captive insurance companies as a viable insurance solution.
Even Wal-Mart, the largest retailer on Earth, carries insurance. It is true that, for the most part, national security firms pay less in insurance than regional companies on a per-employee basis. However, this is not due to self-insurance but a number of factors that these firms utilize. First, because of the size of these firms, they are able to negotiate better rates due to the large amount of premiums that are being collected by the insurance carriers. In addition, these firms tend to carry very large deductibles on their policies. A national security firm can drastically cut the cost of their insurance by utilizing a $100,000 deductible or more on their general liability or Workers� Compensation policies.
If a regional security firm is looking to cut their insurance costs to be more competitive against the nationals, there are a number of advantages they can employ. First, take a cue from these larger firms and share in the risk by accepting a higher deductible on your policy. It does not have to be a $100,000 deductible, but increasing from $1,000 to $10,000 can make an impact. Not only will this result in a decrease in your rate up front, but it can also lead to less money paid out by the insurance carrier through the life of the policy. As loss ratios decrease, this does enable the policyholder to negotiate more competitive rates over time. Also, use your size to your advantage. The nationals are at a distinct disadvantage in terms of employee oversight. These companies must rely on mid-level and regional managers who do not have a vested interest in the company. By maintaining an active role in risk management, regional security company owners can keep their losses to a minimum and help keep the claims off their insurance policies, which in turn will have a positive effect on their rates.
|
