Reducing Collateral Uncertainty Discussed in Risk Financing
This release of Risk Financing updates the
discussion on reducing uncertainty in
collateral requirements for self-funded programs.
Although financial security requirements may not have as much impact on the
total costs of a program as the insurance premium, retained losses, claims
handling, and coverage wording, collateral issues nevertheless can be
significant. Self-insurance, large deductibles, and other types of
loss-sensitive plans can be faced with extensive collateral requirements,
sometimes in the tens of millions of dollars. A lack of information regarding
collateral establishment and adjustment creates uncertainties and often leads
to disputes between insureds and insurers. It can also result in significant
additional costs. Negotiations with insurers up front over how collateral
levels are established and adjusted over time can help avoid disputes and
unnecessary expenses.
The discussion titled "Reducing Collateral
Uncertainty" has been updated by Michelle Bradley and Lloyd Kelley.
Ms. Bradley, ACAS, MAAA, ARM, is a consulting actuary with SIGMA Actuarial
Consulting Group in Brentwood, Tennessee. Mr. Kelley is a retired director of
strategic consulting for SIGMA Actuarial Consulting. Initially authored in
2007, the discussion explains a proactive approach to collateral negotiations
supported by quantitative analysis. It provides examples and offers suggestions
for negotiating collateral levels throughout the entire period that an insured
is required to maintain security for a program.