In the area of private medical insurance, self-insurance is commonplace and largely successful. There seems, on the other hand, to be far greater reluctance among group income protection (GIP) insurers to contemplate such arrangements. But with a changing marketplace and escalating premiums, employers are increasingly questioning what value GIP arrangements actually offer both their employees and the company itself, and whether self-insurance is a viable option.
The reasons why this has perhaps not yet taken off include the fact there is less security over claims liability; administration fees paid to third parties would attract value-added tax (VAT); any re-entry to the traditional insured market may carry a high premium; and it may prove difficult for a company to separate itself from any claims adjudication carrying with it a high risk of disability discrimination.
However, the route presents many advantages. There are no insurer margins to pay and no annual sizeable insurance bill. Increased flexibility over scheme design, adjudication of claims and eligibility is an added bonus. The ability to integrate a health-related service more effectively can improve efficiency and avoid possible duplication, and an employer has control over any third-party providers and can therefore match performance standards to its own requirements.
When considering self-insurance and policy design, a company can develop a bespoke solution, provided it complies with legislation and statutory sick pay. It is critical to gain an understanding of potential liability under any policy wording and so employers should get hold of all available financial data, including historical claims details from previous insurers, and internal sickness and absence statistics. Careful deliberation must also be given to any uncapped liability and some insurance cover should be considered to ensure any liabilities above the maximum threshold the company can bear would be covered.
Self-insurance for GIP is a feasible consideration. It will be interesting to see the market develop – will insurers become significantly more creative in product design, as the last 10 years suggest this is slow to change, or will employers look more seriously at what they need and seek an alternative solution?