The Art of Self Insurance

Transcription

1 The Art of Self Insurance MaxKoonce Koonce, Senior Director, Risk Management, Walmart Stores, Inc. Marc Salm, Vice President, Risk Management, Publix Super Markets, Inc. Dave North, President and CEO, Sedgwick Session FIN201 Wednesday, April 18, :15 a.m. 11:30 a.m.

2 Dave North President and CEO Sedgwick 2

3 What is self insurance? 3

4 How does self insurance compare to alternative programs? 4

5 What are the keys to an effective self insurance program? 5

6 What are the current realities facing self insurers today? 6

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8 Publix Super Markets Publix Super Markets, Inc. is a private but widely held grocery company with ihits corporate headquarters in Lakeland, Florida. Publix is the largest employee owned grocery store in the United States. 8

9 Publix Super Markets Publix operates 1051 stores in fivesouthern states: Florida, Georgia, South Carolina, Tennessee and Alabama. In 2011, Publix sales were over $27 billion. 9

10 Publix Super Markets In 2011, Publix was ranked kd No. 102 by FORTUNE. Publix has been recognized for 14 years straight as one of FORTUNE magazine's "100 Best Companies to Work For. " 10

11 Publix s Casualty Program Self insured retentions Deductibles Corridors Step ups Slf Self administration i ti of claims li Third party administration of claims All designed with the help of our broker. 11

12 Publix s Retentions Front Co Ded Co Ded rridor uctible rridor uctible Front Ded SIR SI Deductible SIR SIR Deductible Deductible Deductible uctible R Step Up De ed (one time) General Liability Druggist Fleet D&O Fiduciary ODL (outside boards) Professional E&O Publix Charities WC Liability Druggist Fleet D&O Fiduciary boards) E&O Charities 12

13 Evolution of a Casualty Program Pro ogram Flexib bility / Cash Flow Self Insurance Loss Sensitive Plans High Deductible Alternative Risk Finance Captive Objectives Minimize Total Cost of Risk and corporate SG&A Optimize the efficiency of the insurance purchase Understand and control (where possible) impact to F/S Manage internal business unit budgets and behavior Guaranteed Cost Maximize claim control (management and settlement) Financial Volatility 13

14 Risk Finance Decision Process Quantify Retention Options Retention Decision Transfer Insurance Keep Funding Decision No Post Loss Funding Options Pre Loss Funding Strategy Guaranteed Cost Small Deductible Large Deductible Self Insurance 14

15 Considerations Impacting Design Financial Operational Cash position Effective tax rate Cost of capital LOC capacity & cost Need for admitted paper (vendors, regulators) Cost predictability Risk tolerance 15

16 Guaranteed Cost Simple TCOR = GC premium 100% of risk transferred to insurer Budget certainty tit No collateral and escrow Claims administration included No cash flow advantage Driven more by carrier portfolio rather than individual risk No immediate credit for good loss experience No real control over claims handling Works for low risk tolerance; high corporate tax rate 16

17 Large Deductible Program Cash flow Less $ on premium Retained losses are deductable Catastrophic protection Pricing driven by individual risk history Collateral and escrow Less budget stability Pricing driven by individual risk history Increased administration Claims handling Have financial capacity to retain risk; financials meet carrier criteria 17

18 Self Insured Retention Program No collateral Insurers do not Drop Down Less fronting cost Dedicated internal Retained losses are resources to manage deductable claims TPA or self administration selection Choose your lawyer Limited carrier selection Certificate of insurance issues 18

19 Qualified Self Insured Program Frequently the least Must still buy excess collateral coverage Possible reductions in assessments and taxes TPA or self administration selection Choose your own lawyer Collateral must be posted in each state States hold on to collateral for a long time No Out and Back In without reapplication Increased administration 19

20 Risk Transfer/Risk Retention Efficient Frontier Risk Transfer Savings Bare The Efficient Frontier 1 Risk Financing Alternatives Current deductible program Guaranteed Cost Risk Retention 1 The efficient frontier is the point at which there is no greater expected reward for a given level of risk retention 20

21 Total Cost of Risk Measuring Program Efficiency Over Time TCOR + Savings Historical TCOR Historical TCOR Analysis $6M $5M $4M $3M $2M $1M Total Cost of Risk Total Cost of Risk as % of Sales Company Sales Revenue (000s) Total Premium Premium as % of Sales 0.70% 0.60% 0.50% 0.40% 0.30% 0.20% 0.10% Previous Year Previous Year Previous Year Previous Year Current Cost Target Cost 21

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23 Walmart Stores, Inc. is comprised of: Walmart U.S. (approx. 1,420,000 associates) 3,600 Walmart Retail Stores 153 Neighborhood Markets 598 Sam s Clubs 142 Distribution Centers Walmart International (approx. 709, associates) 4,557 Retail Units 14 Countries 23

24 Walmart s casualty programutilizesthe the following structure: nsation Compen orkers C Wo Self insurance 13 states High deductible dd insurance coverage 36 states Administration through wholly owned subsidiary TPA 35 states Administration through outside TPA 14 states Liability eneral L Ge Self insurance all states Administration i ti through h wholly owned subsidiary TPA 49 states Administration through outside TPA 1 state 24

25 TheWalmart CasualtyFocus: Workers Compensation ff j ensure associates that suffer work injuries: Receive prompt and appropriate medical care that is focused on their recovery and return to gainful employment; Receive prompt and appropriate disability benefits; Compliance. General Liability Program ensure all customers claims are: Addressed promptly and appropriately while recognizing the importance of our customers in the retail environment; Compliance. 25

26 Program structure allows Walmart to concentrate on our associates and customers through: Self Administration RMIS Risk Control Process Improvement 26

27 Administering claims through our wholly owned subsidiary TPA helps ensure: Appropriate claims management by: Owning the process Experience in best practices between in house TPA and outside TPA vendors Data integrity: Accuracy Analysis Functional Compliance focus Direct relationship between operations and risk management 27

28 The appropriate p RMIS tool is vital to the continual evolution of our program by allowing: Flexibility Scalability Sustainability The RMIS tool must act as an enabler to allow your property and casualty program to pursue overall company objectives. 28

29 Risk Control, although not part of our Risk Management Team, is an integral partner that focuses on: Accident prevention Safe place to work / safe place to shop Risk ikcontrol Accident investigation Post accident support 29

30 Lastly, our program structure allows for continual focus on process improvements. Utilization of real time data from all aspects of Walmart to drive: Safety focus on accident prevention Workflow process improvements Trend analysis Resource allocation 30

31 Inconclusion conclusion, our programstructure: Works with our business model Ensures that we capture and evaluate the data to drive improvement Allows for optimum focus on our customers and our associates 31

32 Current Reality Panel Discussion

33 Questions & Answers 33