Program Design, "Risk Financing" (To Enhance Cash Flow)
Due to the nature of liability claims, a significant time lag exists between the occurrence of a loss and the settlement and payment of a claim. Because of this time lag, unpaid loss reserves become available for investment or other cash-flow generating opportunities. Traditionally, insurance companies held these reserves and benefited from this increased cash flow.
Cash Flow Risk Financing Plans are now available which allow the contractor to benefit from unpaid workers compensation, automobile liability or general liability loss reserves in the form of unpaid premium dollars. This provides you, the contractor, with these cash flow advantages, until such time as a covered claim has been incurred and expensed.
Retrospective Rating Plans Rating formulas that determine premium levels at expiration, largely based on a contractors loss experience.
Large Deductible Programs (In excess of $100,000 per occurrence) Blends features of first-dollar plans with self insurance. Provides an aggregated deductible that limits final exposures.
Self Insurance Formal decision to retain risk rather than insure it. Losses are funded from self funded reserve accounts.
Captive Insurance Companies An insurance subsidiary owned by the individual organization established to insure the loss exposures of its owners.
While risk financing programs can offer tremendous cash flow advantages to a contractor, it is important to recognize the uncertainty of final premium costs. Loss sensitive programs do complicate budgeting and consequently, the bidding process, and this should be acknowledged. Your Technical Assurance, risk management professional, can however, implement stop-loss provisions to these loss sensitive plans or make modifications to reduce the overall exposure basis.