What
is a self-insurance group?
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A
self-insurance group is a risk pooling mechanism, whereby members
of a trade association join together for the common purpose
of providing cost effective, stable workers' compensation for
eligible members of the association. Self- insurance groups are
regulated by the Texas Department of Insurance and must satisfy
initial and ongoing statutory requirements. The concept is similar
to a mutual insurance company where policyholders pay a premium
in return for a transfer of liability. When the collected premiums
exceed losses and expenses, members may receive a refund or
dividend. A self- insurance group enables like-minded automobile dealers
to combine their premiums to cover the workers' compensation
losses of the membership. Membership is limited to those automobile
dealers that have demonstrated a commitment to workplace safety
and have better than average loss experience. The group provides
loss control, claims and program administration services tailored
to meet the unique needs of automobile dealers in order to reduce
risk, minimize losses and insure cost-effective management of
the group. To protect members from the financial risk of large
losses, the self-insurance group buys excess workers' compensation
insurance to limit the group's maximum liability.
A
Board of Trustees made up of automobile dealers will be elected and
will be responsible for oversight and management of the group. The group selects an Administrator and contracts with
a third party administrator (TPA) to provide the day-to-day administrative, claims management and loss control
consulting services to the group. TADSIG has selected Brentwood Services Administrators,
Inc. (BSA), a company with proven expertise in providing these
services to other automobile dealer self-insurance groups.
How
is a self-insurance group different from a traditional insurance
company?
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Although similarities
exist there are important differences between traditional insurance
companies and self-insurance groups.
When insurance is purchased from a traditional insurance company,
that carrier retains all underwriting profit and investment
income. In addition, all services including loss control and
claim services are controlled by the carrier with little to
no input from the automobile dealer.
TADSIG is
operated for the benefit of its members, not the expectations
of insurance companies, shareholders or Wall Street analysts.
Unlike traditional insurance companies, when premiums exceed
claims and administrative expenses, a portion of the surplus
(profit) is strategically used to ensure the long term financial
stability of the group. Remaining surplus may be returned to
the group as a dividend, subject to state approval.
Premiums
paid by group members are used to pay claims and related expenses
for participating members. The Board of Trustees and its Administrator
establish the amount of premium that the members must contribute
to cover expected claims and expenses based on the recommendations
of an actuarial consultant, and are subject to the approval
of the Texas Department of Insurance.
The goal is to take a conservative approach and ensure
sufficient funds are available for claims and expenses as they
are due for payment. An
important safeguard to protect the group is an excess insurance
policy that the group buys each year to limit the impact of
large catastrophic claims.
Am
I paying for the losses of other employers?
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The
short answer is yes, but self-insurance groups are no different
from any other form of insurance, which by its very nature involves
a pooling of risk between policyholders.
Whether you pay your premiums to an insurance company
or a self-insurance group, you are paying for the losses of a
group of employers that insure with the same company.
Some years you may have more losses than the premium
you pay, other years you will have less.
After all, the purpose of insurance is to replace the
uncertainty of losses over the years with a predictable premium.
The explicit
purpose of TADSIG is to offer a workers' compensation solution
for select members of the TADA, providing superior loss control
and claim services focused on preventing injuries, reducing
losses and maximizing the cost effective benefits of the self
insurance group.
Is
the trust assessable?
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As
a state regulated entity, members of self- insurance groups are
required to execute an indemnity agreement that creates joint
and several liability between the members of the group.
In the event that a self-insurance group's costs exceed
its financial resources, members may have to contribute additional
premium proportional to their respective exposure. Effective
group management including disciplined underwriting, adequate
rates, a focus on loss control and claim mitigation reduces
the likelihood an assessment may occur. In fact, effective group
management often results in surplus (profit) that can be returned
as a dividend to group members. Members of successful automobile dealer self-insurance groups
in other states find this profit sharing feature a significant
advantage as compared to a traditional insurance where the company
retains any surplus profits.
Is
it safer to stay with my insurance company?
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A
recent publication from a prominent Texas insurance group claims
that the insurance companies of Texas pay out $1.38 for every
$1.00 of premium collected. Any
company operating under these conditions will not survive if
they continue to mismanage their insurance product in this manner.
At the same time, they cannot sustain price stability over the
long term and certainly cannot continue to provide clients with
service they deserve and expect.
Historical results suggests that many of these companies will
encounter financial challenges that inevitably impact industry
pricing in an adverse manner.
Clearly,
membership in a self-insurance group creates shared risk. However,
dealerships often choose to join a self-insurance group realizing
that the measured risk is outweighed by the rewards of long
term price stability, potential for surplus distributions and
the ability to directly impact your cost of workers' compensation.
The goal of the group is to charge a fair premium and to assist
members in an effort to first prevent losses and then effectively
manage claims. This is the only long-term solution to the uncertainty
and cyclical nature of workers' compensation insurance pricing.
The
self-insurance group model is the most efficient way to mitigate
the spiraling costs of workers' compensation for many segments
of the market.
How
can I join?
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To determine if your dealership qualifies and to evaluate whether
TADSIG can help
you achieve your long-term business objectives, take a few moments to complete an
application
Will my dealership still receive an experience modification
rating based solely upon our individual performance or will some type of "group rating" be calculated?
(back to top)
Each dealership will continue to receive an experience modification that is
calculated using their own performance. The calculation of accurate experience mods is essential to charging equitable premiums
that are reflective of each dealership's ability to effectively control workers' compensation losses. Experience mods serve to
recognize individual good performance with lower premiums and conversely increase premiums for those dealerships with above average
losses.
Will all members of the Texas Automobile Dealers Association
be allowed to participate in TADSIG?
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While
TADSIG is exclusively available to TADA members, not every member will
qualify to participate. In order to maximize the value, ensure long-term stability, and increase the potential for member
dividends, stringent membership standards have been established. Only those dealerships that have
demonstrated a consistent commitment to injury prevention reflected through favorable loss experience will be considered for
membership. Brentwood Services Administrators, Inc. will provide loss control services through experienced and highly qualified safety
professionals. The loss control consultants will visit each dealership and provide solution driven on-site services including
hazard identification, safety policy development, employee training, return to work assistance, and OSHA compliance. Each member
will have free use of an extensive safety video library with many automobile dealership specific titles along with access to a Members Only
section of the website that is filled with safety resources.
In addition to a proven loss performance and a commitment to sustaining a safety
culture, members will also undergo a financial analysis by a Certified Public Accounting firm to determine their ability to fulfill
their premium obligations.
Are self-insurance groups a new concept?(back to top)
Although a new option in Texas, workers' compensation self-insurance groups (SIGs) have operated profitably for
decades. Many different industry trade associations have been taking advantage of state legislation that allows the formation of
SIGs including Healthcare, Building and Road Contractors, Nursing Homes, Manufacturing, Transportation, Agriculture, Restaurants,
Timber, Textiles, and Automobile Dealers to name a few.
Currently there
are more than 15 other state
automobile dealer associations that operate workers' compensation self-insurance groups. Automobile dealers participating in SIGs
have reaped the benefits of long-term stability, industry focused services, the "at cost" operations structure that no commercial
carrier can duplicate, and the rewards of dividends for preventing losses and controlling claim costs. Since group
self-insurance is state regulated, private trade associations n Texas did not have the regulatory approval to form workers'
compensation self-insurance groups until legislative changes were made effective January 1, 2003. In addition to TADA, four
other Texas trade associations have received approval to operate workers' compensation SIGs.
Who will perform the day-to-day duties such as
underwriting, policy management, premium collection, claims administration, loss control, and marketing?
(back to top)
TADSIG allows TADA members to go into the insurance business for themselves but not by themselves. The
management and operational demands of a self-insurance group requires professional expertise. After completing a national search
and comprehensive evaluation of companies that specialize in administering self-insurance groups, TADA unanimously selected Brentwood
Services Administrators, Inc. (BSA). Based in Brentwood, Tennessee and operating offices in seven states, BSA has extensive
experience and a successful history in working with associations throughout the country including other state automobile dealer
programs. BSA's success in assisting associations build strong self-insurance groups provides
TADSIG with a proven partner.
What specific advantages does a dealer gain by participating
in a self-insured group?(back to top)
First and foremost, you join forces with your fellow Texas automobile dealers and immediately take control of
your own destiny. Any premiums paid by participating dealers that are not needed to pay for claims and expenses of the
self-insurance group are considered surplus and will be returned to those dealers that contributed to the success or retained to
strengthen the programs financial position.
Another advantage is the investment income that can be generated from claim reserves. Unlike other types of
claims where damages are immediately paid out, workers' compensation claims typically are paid out over several years. The
commercial insurance industry takes advantage of the long-tail nature of workers' compensations claims by setting aside the premiums
you pay up front and investing that money until future payments are required. Through group self-insurance, the power of
ownership transfers the investment income advantages from the stockholders of insurance companies to the hard working automobile
dealers of Texas. When the results of a particular year are known and all claims have been paid or properly reserved, any
surplus that remains is the property of the program participants, not an insurance company.
In addition to the immediate financial advantages, dealers can achieve other objectives that have a positive
effect on premium year after year. Activities like professional loss control and safety services that not only serve to decrease
accidents but to increase your dealership's ability to increase profitability. Combining purposeful injury prevention with
aggressive claims administration, effective mitigation of losses, and an unyielding partnership in returning employees to work will
result in the positive net effect of fewer injuries, lower costs per claim and a favorable experience modification factor that drive
down premiums for years to come.
What if my current insurance carrier or agent implies
that premiums on my other coverages will rise or be cancelled if I join the Texas Automobile Dealers Self Insurers Group
(TADSIG)?
(back to top)
Pick up a phone and call the TADA or Brentwood Services Administrators, Inc. TADA has partnerships with
trusted companies that will be pleased to provide you with proposals on various lines of coverage. You deserve choices and
shouldn't be forced into an all or nothing compromise when it comes to finding a long-term solution to your business insurance needs.
Why haven't standard insurance carriers offered these types of
programs to employees?
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One obvious reason is because self-insurance programs are designed to be administered by your association rather
than an insurance company. Just like your dealership, insurance companies are "for profit entities". The self-insurance
group is, by definition, a means of providing coverage "at cost". Any surplus, as well as interest earned, belongs to the
program participants. Insurance companies are set up to capitalize on the surplus and interest to increase cash flow, market
share, return on equity and other objectives that drive share price and retained earnings and serve the best interest of company stock
holders.
How can a dealer that is interested in participating in
TADSIG be certain that all available safeguards have been put into place?
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Prior to being allowed to operate as a self-insurance group, a detailed and exhaustive application had to be
submitted and approved by the Texas Department of Insurance. The initial approval and on-going authority for continuous
operation is subject to compliance with the rigorous rules and regulations established by the Texas Department of Insurance.
These rules can be found on the Quick Links section of this website and then select TX Labor Code Governing Group Self-Insurance. If you
would prefer contact Roger Thormahlen at 877-892-8863 or
roger.thormahlen@bwood.com
and Roger will happily send you a copy.
As a part of the on-going governance, the Texas Department of Insurance sets forth in the rules that self-insurance
groups will receive an audit at the conclusion of the first year of operations and then at least every three years thereafter.
Beyond the state regulatory controls, the operations of
TADSIG is managed and controlled by the Board of
Trustees. These Trustees not only serve in a leadership capacity for the program, their respective dealerships are participating
members of the self-insurance group. Through their active involvement and objective judgment, the Trustees will make decisions
that best serve the collective interest of all participants.
I have heard that members of a self-insurance group will
lose their current experience modifier (mod) and have to
start over with a 1.0 mod if they chose to leave the
program?
-
Upon joining TADSIG, your dealership's mod will be
calculated and maintained by Brentwood Services
Administrators (BSA). While it will not be
submitted and filed with National Council on
Compensation Insurance (NCCI) on an annual basis,
the mod is calculated using the exact same formula
prescribed by the NCCI. If at some point your
dealership decides to leave TADSIG and seek coverage
with a standard insurance carrier, BSA will the file
appropriate paperwork in order for NCCI to
acknowledge your mod. Before making a change from
TADSIG, we encourage each dealer to confirm that the
insurance company being considered will accept a mod
filed on an ERM 6 form.
