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Brokers and the self-insurance dilemma

Brokers and the self-insurance dilemma

Brokers and the self-insurance dilemma Self-insurance sounds like a broker’s worst nightmare. If every company were to start insuring itself then surely brokers would have no business?

However, it seems the reality is quite different.

Self-insurance is undoubtedly on the rise. In the USA between 1999 and 2015 the percentage of employers who fully or partially self-insured employee health benefits increased from 44% to 63% and in 2014 the number of insurance captives in the world reached a record high of 6,678. No wonder then that selfinsurancemarket.com (SIM) has relaunched its website to take advantage of this rapidly growing sector in the UK.

“Self-insurance is a huge industry in the world and encompasses a number of different areas – the largest by far would be self-employed employee benefits in the States where companies design their own health plans and self-insure and buy protection against large losses,” said SIM managing director Dominic Higham in an exclusive interview with Insurance Business UK. “It allows them to step away from state legislation about what they need to provide for their employees.

“There are companies in the UK that provide health benefits and private health insurance to their staff – a lot of them set up trusts of their own and do it that way, creating a pot of money that they pay losses out of.

“Effectively self-insurance is replacing the insurance company and their functions and bringing them in-house, assuming a degree of risk for yourself and being accountable for your own losses. The idea is that by being responsible for your own risk you take more care in your loss prevention and your claims activity and there are benefits through lower equivalent premiums.”

Those words may raise a red flag for brokers – “replacing the insurance company”. However, Higham insists this is nothing to be afraid of – that self-insurance is an established risk transfer mechanism and will generally only apply to companies of a certain size. Indeed he suggests that the bulk of the largest FTSE 100 companies already have captives in place.

By contrast, Higham believes that a website like his can present opportunities to brokers – he even describes it as a “business to business dating site”.

“If you’re assuming risk, you don’t want to assume all the risk – people do still buy insurance to protect their net retention and so on, unless they are extremely large and can bear the risk themselves,” he said.
“What we’re trying to do is like a business to business dating site. It doesn’t replace anything that goes on at the moment. It’s just another way for companies to get into the self-insurance game and find providers that can help them.

“I actually think it’s a useful tool for brokers. If they have an unusual risk or may be looking for new partners in other sectors – they can quickly and easily locate new partners and develop a relationship with them.

“For example, last year we had a case in Bermuda, where we trialled the site, and we had a reinsurance broker who was looking for a run-off portfolio for life and health and he trialled it and found a market stateside and has been trading with him ever since.”

In Higham’s opinion, SIM gives brokers a chance to post queries on behalf of customers – with other members able to see this information and get in touch via the website if they are able to help.

“As a former reinsurance broker, I understand the challenges often faced by professionals and buyers when seeking partners for insurance programs and how important business relationships and contacts can be,” he said. “SIM has been relaunched to help people find new partners for self-insured solutions as well as providing information about the main types of self-insurance.”

What do you think of self-insurance? Does it worry you – or is it another business opportunity? We’d love your thoughts, so we invite comments below.

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