Teng - Pricing WC large ded & excess insurance

Question 1

Why expense may be higher under LDD than on a fully insured plan.

Answer 1

1. Cost in seeking reimbursement from insured
2. Additional data reporting requirement
3. Cost in issuing LDD endorsement
4. Cost in computer system upgrade

Question 2

Why LDD is a riskier product for insurer

Answer 2

1. Excess losses are more difficult to estimate
2. longer average loss & expense payout period
3. higher credit/default risk
   insurer is required to pay claimant first & seek reimbursement from insured. Ultimate burden of payment in on insurer. the risk should reflect the financial stability of the insured and the amount collateral held.

Question 3

Why is Excess loss coverage risky?

Answer 3

1. insurer has no control over underlying claim
2. interest rate risk is significant due to CF differences. avg loss and expense payout period is longer.
3. claim notification is longer, since insurer must rely on notice from TPA.

Question 4

3 ways in which excess WC differ from LDD plan

Answer 4

1. LDD: insureds are purchasing full WC coverage, with deductible endorsement
   Excess WC is a stand alone policy
2. LDD: offers both excess loss protection and claim handling services
   Excess WC offers excess loss protection only
3. LDD: insurer pays the loss first, then seek reimbursement from insured for the portion of loss under deductible.
   Excess WC: insured pays the claimant first, then seek reimbursement from the insurer on the excess loss.

Question 5

3 reasons why employers like LDD plans?

Answer 5

1. medium sized employers may not qualify for self-insurance, but do qualify for LDD
   2.If converting from full coverage to LDD with the same insurer, employer is already familiar with the insurer’s operation and customer service
2. Gain advantages such as:
   [] control over primary loss,
   [] saving on tax and assessments