Self-Insurance Fund Review

Organisations are under increasing pressure to achieve efficiencies in their budgets and demonstrate value for money to taxpayers.

One area to drive efficiency is by retaining more risk (self-insuring) and only purchasing insurance to protect against the less frequent, larger losses. But this means organisations need to understand their historical liabilities and make sure they have sufficient funds to meet them.

Marsh has a long history of helping organisations better understand the funding requirements emanating from self-insurance. Our Fund Reviews ensure the organisation has adequate funding in place to meet the cost of self-insured claims when needed.

To ensure funds are available to pay for these retained costs, many organisations make annual provisions in their accounts, often by establishing a ring-fenced self-insurance fund. Such funds are sums of money, or “reserves”, set aside to finance those losses; which the organisation needs to pay itself, below where the insurance company has liability.

Self-Insurance Fund Reviews

It is essential for an organisation to understand the potential cost of the risks that they are retaining and the expected timings of future payments. Organisations must be able to answer three key questions:

1. What are the ultimate financial obligations for all the risks that it has insured?
2. Is the fund sufficient to meet those obligations?
3. What level of financial injection is needed to cover the forthcoming year’s retained risks?
   
   Answering the questions above addresses the issue of fund sufficiency. Increasingly, pressure on finances, governance best practice, and governmental procurement policies demand that organisations also address two further issues:
   
   
4. Does the level of risk retention enable the local authority to achieve best value for money in its insurance purchasing?
   
5. Does the organisation hold more in its fund than required - can it release funds to support front-line service delivery?

Overview

Marsh assists organisations in answering these questions by using a combination of recognised actuarial process and wider, bespoke analytics. Our processes have been developed in collaboration with our public sector clients and are performed by sector-specific analysts. Our evaluation work covers the following steps:

Aside from offering the guidance needed on fund injections and fund size, our work provides a report that details the reasoning and validation for any decisions made: giving a complete audit trail for future reference.

Enhanced Analysis

For the majority of our clients, the methodologies and reporting format that Marsh has developed to industry standards are appropriate. We can also add some enhanced analysis recognising and measuring the uncertainty of the ultimate claims costs. This enhanced analysis also makes the report compliant with the Institute and Faculty of Actuaries technical standards.

Municipal Mutual Insurance (MMI)

As an additional option we can review the potential Municipal Mutual Insurance Ltd (MMI) scheme exposures. While those who have been subject to the MMI levy know the current position, having a view on future liability now will help manage potential additional levies in future years. Our MMI process considers the most up to date financial position of the scheme, to ensure that a realistic view is given.

Benefits of Marsh’s Review of Self Insured Funds

Benefits of Marsh’s fund review analysis include:

• Robust and recognised approach to evaluating liabilities.
• Confidence in the adequacy of reserves.
• Understanding cash flows for self-insured losses.
• Assistance with identifying appropriate funding levels.
• Effective use of the public purse.
• Effective governance over the use of funds.
• Identification of potential surplus to support front line services.
• Assurance for auditors that potential liabilities are properly accounted for.
• Reports are written so that those without an insurance background can understand them, with all terms clearly explained.