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CPHRM Risk Financing

CPHRM Risk Financing 2014

Risk Retention current expensing of losses; unfunded loss reserve; funded loss reserve; borrowed funds; self-insurance (self-insurance trust or affiliated, captive insurer)
Unfunded loss reserve an accounting entry that shows a potential liability, segregates a portion of surplus equal to booked value of retained losses (e.g., uncollectible accounts, loss of revenue for lost items)
Funded loss reserve Organization sets aside funds for expected losses (e.g., Reserve for taxes payable at the end of the month, reserve to absorb the cost of defending claims)
Borrowed funds an organization borrows to pay losses; results in a reduction in line of credit or ability to borrow and represents a depletion of its own resources to pay its losses and, in time, uses its own earnings to repay the loan
Self-insurance trust a funding vehicle that is a bank account administered by an independent third party (trustee); funds are designated for the sole and restricted purpose of paying losses
Affiliated, captive insurer a subsidiary to finance specified types of losses; general, the affiliated insurer and the insured “parent” organization are members of the same “economic family,” negating any transfer of risk to the outside entity
Types of captives single parent; group captives; fronts
Type of retention that has Domicile Captive
Single Parent Captive all hospitals owned by same economic entity
Group Captive Hospitals owned by all different economic entities
Fronting Company a mechanism by which Physician Group gets access to Captive
Risk Transfer transmit an organization’s risks to an outside party (commitment to pay, but does not transfer legal responsibility)
Noninsurance Risk Transfer a contract under which one party, the transferee/indemnitor, agrees to pay money for specified types of losses for which, in the absence of the contract, the financial burden would fall on transferor/indemnitee
Indemnitor pays money
Indemnity agreement one parry to a contract agrees to pay another rif the latter suffers a specified type of loss
Hold harmless agreement a commitment that one contracting party makes to another to hold the latter harmless from specified types of legal claims that may be brought against the latter because of activities covered by the contract
Insurance Risk Transfer a system by which a risk is transferred to an insrance company, which reimburses the insured for covered losses and provides for sharing costs of losses among all insureds
First party insurance provides coverage for the insured’s own property or person so that the insured will be restored to the same financial position that he or she had prior to the loss (e.g., Fire/Property, Business interruption, flood, crime, auto (collision), etc.)
Third Party Insurance (aka liability insurance); provides coverage to a party other than the insured to make that person whole for loss or injury covered by the insured (e.g., HPL, GL, EPL, D&O, auto liability)
Health and Welfare Insurance/Social Benefits coverage intended to indemnify the employee by restoring his or her health and earnings to the level maintained prior to the loss (e.g., Workers’ Comp, health benefits)
Financial Guarantees (Surety/Bonds) different from traditional concept of insurance in that assets are pledged for full amount of risk transferred (e.g., nursing home bonds, contract bonds)
Risk Retention Group an insurance company that provides liability coverage to its members and owners; members must be “similar or related entities” with respect to the liabilities to which they are exposed
Risk Retention Group licensing must be licensed as an insurance company in at least one of 50 states (a transfer, not really a retention)
Key variables to consider in selecting risk financing size/type of organization; financial strength; types of risk; risk-taking philosophy; goals & objectives; effectiveness of risk management and loss control program; effect on organization’s long-run costs
Total Risk Transfer Guaranteed-cost Insurance/Reinsurance
Blended Risk Transfer/Retention Retro/Finite/High Deductible Insurance/Reinsurance
Total Risk Retention No insurance/reinsurance
Standard elements of insurance policy declarations page, insuring agreement, conditions, exclusions (DICE)
Direct insurance contractual arrangement involving the purchase of insurance by an “insured” from an “insurer”
Excess vs. Umbrella Excess cannot be over different lines of coverage whereas Umbrella can
Reinsurance a contractual arrangement involving the purchase of insurance by an “insurer” from “another insurer”
Policy limit maximum amount the insurer will pay for losses (e.g., 1M/3M – 1M/occurrence, 3M aggregate)
Per occurrence applies to a specific loss
Aggregate applies to all losses within a policy term
Deductible vs. Retention Carrier responsible to pay deductible and recover from insured, so deductible is included in total policy limit; insured responsible for SIR directly, so it is not included in total policy limit
Claims-Made Coverage provides coverage for a claim that occurred after the inception or retroactive coverage date of the policy and is reported to the insurance company while the policy or any replacement policy is still in effect
Occurrence Coverage provides coverage for a claim that occurred during the policy period regardless of when the claim is reported to the insurance company
Retroactive date the date defining the beginning of the coverage period for the claims-made policy; this date is retained on an indefinite basis if one remains with the same carrier
Nose coverage Period of time between an insured’s retroactive date and the current policy period
Tail coverage an extended reporting endorsement that provides coverage for a claim which occurred after the inception or retroactive coverage date
Who regulates insurance State, not Federal
Insurance Agent generally represents one or more insurance carriers
Insurance Broker generally represents the purchaser
RFP Request for Proposals: proposal for insurance brokerage (Market Proposal, Conceptual Proposal)
Created by: Camellia Acker Camellia Acker