This document discusses considerations for companies moving from a deductible insurance program to a self-insured retention (SIR) program. Some key points: 1) SIR programs give companies more control over claims handling but also require budgeting for and managing expected and catastrophic claims costs. 2) Companies typically hire a third-party administrator to manage SIR claims but must consider data tracking, TPA selection and fees, claims reporting processes, and establishing a trust account to pay claims. 3) Other factors that require attention include internal expertise for claims evaluation, authority levels for claim settlement, and ensuring proper allocation of increasing claims costs across business units.

1. To SIR with Love
Going from a Deductible to a Self-Insured Retention Claims
Program
By Maeve Davis
Published in Canadian Insurance Magazine – March 2007
Traditionally, insureds have had little input into deductible programs. In fairness
however, for the most part, they did not have the expertise or the resources available to
investigate, evaluate, negotiate, settle, direct and monitor both small and catastrophic
claims. They therefore had to rely on their insurer and national network of experienced
claims professionals.
This provided insureds with the advantage of having no overhead associated with the
handling of their claims -- administration, adjusting, data, finance, etc -- as well as the
benefit of rolling the claims administration expenses into the premium, thereby greatly
simplifying the internal allocation of insurance costs.
Recently, however, risk and finance managers have chosen to take a more active role in
the claims process by assuming an increased level of risk in the claim process. As a
result, there has been growing interest in self-insured retention (SIR) programs and
other self-financing options of late. This alternative option allows these managers to
retain full control of their claims information and financial data within the SIR.
Most corporations with an SIR program typically contract with a third-party administrator
(TPA) to manage their claims. In fact, even when moving to a new carrier with an
appointed TPA, they enjoy the benefits of continuity in their claims and data handling. At
this stage, the insurer is not actively involved in the daily commodity (expected) handling
of claims issues and the change in carriers does not greatly affect the day-to-day claims
process.
There are many considerations to take into account when moving from a deductible to
an SIR program. Though the premium savings from a $5,000 deductible to a $50,000
SIR may seem cost-effective and in line with a company’s own corporate risk control
philosophies, budgeting, absorbing and allocating these costs can prove challenging
unless they are well thought out prior to binding coverage.
There are number of parties involved in the purchasing of an insurance product for the
protection of assets and potential liabilities: The insured, brokers, insurers, consultants,
and TPAs. Each has a role to play to ensure the seamless and effective transfer of the
financial responsibility of claims handling to the insured.
Risk Manager Responsibilities
Data tracking: Consideration should be given to the data requirements of not only the
risk management division but also to the finance, audit and loss control teams.

2. Additional concerns include who will track and house the data? Who owns the data in
the event that the relationship with the data tracker is terminated? Will both incidents
and claims be tracked? Are there special data fields that are required to be collected?
Who requires access to the data (insurer/broker/consultant)?
There are many robust claims data systems, some that involve no costs, some that
require some IT outlay for special enhancements, and others that are full RMIS systems
that can be quite expensive. A TPA claims system is traditionally just that – a claims
system. Details relating to locations, security, construction, etc., are an RMIS function,
as is loss forecasting and trending analysis. If the insurer traditionally provided these
services, this should be considered prior to the move.
TPA appointment: When the insured organization has an existing TPA relationship that
it wishes to maintain, it should be made clear to the broker and the underwriters from the
onset. When changing TPAs, insureds need to consider whether they will be transferring
their run-off claims to the new TPA, given that there are traditionally costs associated
with file set-up and review. Additionally, transference of a file mid-negotiation may
interrupt and affect any negotiation and settlements already in place. Attention should be
paid to the handling of claims falling under the occurrence forms policies.
Things to consider when hiring a TPA:
 A SIR does not provide any protection of an insurer’s policy. Therefore,
existing suppliers, contractors, municipalities, and/or government
agencies must be consulted to ensure they will accept large SIRs. Most
prefer to see an insurance certificate indicating a reasonable deductible.
 Is the carrier in agreement; is the TPA on their approved list?
 Will the broker/consultant be managing the TPA or any part of the claim
process? (Take into account the additional costs for their time.)
 Who is responsible for the due diligence in the TPA appointment; drafting
an RFP, review of services, scope of experience, match of field
operations to locations, financial stability, insurance, service agreement,
Sarbanes-Oxley and privacy compliance?
 Who will review fee issues and participate in ongoing file audits (above
and below the SIR)?
The TPA may suggest the appointment of a single point of contact (control adjuster) for
the day-to-day questions. This, and its associated costs, should be a part of initial
discussions. This individual will also serve as a liaison between the insured, the broker
and the insurer in relation to the claims program.
Claims reporting: It is important to review internal communications and the processes
in place for reporting claims. Methodologies can vary significantly depending on the
operations. Technology has evolved to the point where it is commonplace to report
claims online, as long as the individuals have access to the Internet. Many firms
continue to fill and fax forms to the risk management department/ adjuster/ broker.
Does the insured have exposure to losses that require a 24/7 emergency response? Is
there an after-hours or emergency 24/7 claims reporting telephone number in place? Are

3. there French (or other language) intake needs? Costs are generally associated with
these services. Consideration should also be given to invoicing and internal allocation.
Who is responsible for reporting to the insurer under the threshold and category losses
noted in the SIR endorsement? If the adjuster is to perform this service, has the insurer
agreed that notice to the TPA is considered notice to the carrier (thereby passing on full
responsibility)?
Think about who will be vetting all of the incidents to determine if they are actually claims
and whether they require a response and/or investigation. Tracking all incidents can
provide valuable feedback on tracking trends by division or location. Thought should also
be given to the insurer’s expectations in terms of vetting incidents and deciding when a
claim file should be set up.
Trust (escrow) account: For large transaction programs, it makes economic sense to
set up a trust account. In this way, costs can be readily settled through this account
versus issuing one-off cheques for settlements/expenses. Before creating the account,
determine the number of anticipated claims transactions within any given month under
the proposed SIR.
If there is no trust account, does the insured have the resources to readily issue
payments in a timely manner? What is the internal turn-around time for issuing cheques
or electronic fund transfers (EFTs)? Sometimes the settlement of a claim requires
getting a cheque into a claimant’s hand within one week or one day. The TPA can help
determine the optimum level of funding for the trust.
A trust generally requires monthly replenishments. A monthly statement is sent with a
request to replenish the trust to the pre-agreed escrow level, based on that month’s
transactions. The finance division will need to be aware of this process to determine
impact on budget and cash flow.
Processes regarding the funding of the trust account will also need to be established.
Where insurance costs are traditionally allocated to divisions/properties, is the initial
funding of the trust obtainable?
Generally, the TPA, or in some cases the broker, will manage the trust fund. Due
diligence should be completed as to their experience in this area, their processes, IT
security measures, insurance, etc. Determine what formal documentation is needed to
support the management of the trust to cover any potential internal or external financial
audit. As there are generally costs associated with the management of the trust fund,
including interest and cheque issuance, clarify what will be paid out of the trust --
indemnity, expenses, adjusting/TPA fees--- as well as the authority levels needed for
each one of those areas.
Charge back: Understanding that the allocation of insurance costs (premiums, claims)
is charged back internally, several issues should be weighed. How will these costs be
charged back? Can the division/property departments financially withstand the decision
to increase participation in the risk and have they budgeted for it?
A number of payment requests will begin to come in. Do employees have the necessary
expertise to determine the validity of claims expenses (i.e. appraisal or expert fees,

4. legal, adjusting and other claims expenses) How will expenses/indemnity payments be
paid when a division or location is sold or collapsed?
Internal expertise: When adjusters request approval of their recommendations on the
settlement of a file, is there internal expertise in place to assess the investigation report,
evaluation and settlement recommendation? If not, does the broker/consultant have that
expertise? Seasoned claims personnel have tremendous experience in evaluating
losses based on their hands-on experience combined with regulatory and case law
exposure. However, if their expertise is utilized, additional costs may be incurred, over
and above the standard adjusting costs.
Authority: For smaller claims (i.e. torn or stained clothing of a claimant), it traditionally
makes economic sense to provide the chosen TPA with a pre-approved level of claims
settlement authority. An experienced TPA will be able to effectively assess the ability to
quickly settle a claim based on the liability of the insured combined with the sheer
determination of the claimant. However, every time the independent adjuster provides a
report, a request for settlement authority, etc., it will generally increase the overall costs.
Responsibilities under the SIR endorsement to the insurer must also be considered. This
includes the requirement to report any claim over a certain threshold percentage
(typically 50 per cent to 75 per cent of the SIR amount) and category claims (typically
severe bodily injury claims or claims involving minors, the elderly and litigation). The
insurer reserves the right to take over the handling of these claims, irrespective of
whether or not they have breached the SIR.
When an insurer does take over the claim either within or in excess of the SIR threshold
or category losses, there is no obligation on its part to share the file data information.
Therefore, clarify within the SIR endorsement the requirement to receive current
financial data associated with all claims.
If the TPA is to track the finances in their claims database, arrange with the insurer to
provide the info to the TPA on a specified timely basis. There is much more negotiation
leverage prior to binding coverage then afterwards. Having the TPA continue to track
data for claims in which they are no longer involved and which are being managed by
the insurer, may also attract additional costs. Who will pay for the adjuster’s data
collection fees? Traditionally, insurers will not pay for data tracking costs, as they are a
need of the insured and not an expense associated with the handling of the file.
For claims the carrier has taken over that fall within the threshold or category claims
criteria, confirm if the carrier has authority to make payments up to the threshold without
prior approval of the insured. If the insurer has agreed to keep the TPA within the
investigation, ensure that TPA fees are fully covered by the policy.
Service agreement: The service agreement with the TPA should outline the criteria as
to how claims are to be handled to optimize timeliness and cost effectiveness.
Parameters of telephone, desk or field adjusting should be clearly outlined. Each has its
own merits within the specific claim type and size. Measurements in the form of key
performance indicators (KPIs) should outline expectations, measure criteria important to
internal communications, and maximize cost efficiencies. The agreement should also
outline fee and reporting criteria.

5. Subrogation: Thought should also be given to the parameters surrounding subrogation,
recovery and the level at which these efforts are no longer cost effective. How
aggressive should the TPA or insurer to be? Recovery should reflect the insured’s
claims and customer philosophy. Instructions should be given as to the direction of
recovery funds i.e. back to the trust and/or back to the division/property. To ensure
successful subrogation, the TPA and/or insurer will require access to vendor
agreements. Current copies should be readily available.
Litigation: With respect to litigation management, full consideration should be given to
several issues. What is considered a litigation file? What is the insurer’s understanding?
(i.e. threat of litigation or receipt of a statement of claim? Clarify this with the TPA so it
can be appropriately coded and reported if necessary under the terms of the SIR
endorsement.
Whose legal counsel will be used while the claim is within the insured’s control -- the
insurer’s preferred counsel or the insured’s own? The TPA, broker/consultant may have
their own recommendations based upon the lawyers’ experience.
Reserving philosophy: What is the TPA’s current reserving practice? Discuss this with
the TPA. How are the reserves being communicated, funded and financed? Once the
claim is taken over by the insurer, they will set their own reserves based upon their own
reserving practice and protocols.
Broker Responsibilities
When moving from an SIR to a deductible, most questions raised will likely fall to the
broker to address. This role is very important and can go a long way in solidifying the
client/broker relationship.
Take the initiative and manuscript the SIR endorsement to incorporate the client’s
expectations and claims philosophy within the underwriting submission when negotiation
leverage is at its highest. What is the client prepared to agree to under an SIR
endorsement? This includes the client’s preferred reporting threshold (i.e. can a 75-per-
cent threshold be negotiated versus 50 per cent and what constitutes a category claim).
Ensure the mutual communication of financial and file data is clear.
Moving to an SIR may also involve appointing a TPA. This will potentially involve drafting
and conducting an RFP and assisting in the final appointment of the TPA. If there is an
existing TPA on the program, include a copy of the current TPA service contract so the
insurers are fully aware and in agreement with the client’s preferred claims handling
process. This avoids questions or conflict after the coverage has been bound. Likewise
contemplate:
 Is there any special information the insurer requires to be collected?
 Who is responsible for file audits within the SIR?
 What file audit procedures will the carrier require and are agreed to by the
client?
 Who is responsible for financial, security, privacy and regulator audits of the
TPA?

6.  Where do the broker’s claims services fit within the program? Acting as a
claims advocate in the event of a coverage/claims dispute (i.e. mediator), or
being more activity involved in the day-to-day claims process, including
attendance at quarterly meetings? What is the cost, if any, to the client?
 Will the role include obtaining current data updates on claims handled by the
insurer and communicating them to the TPA as required by the client?
 If the client does not have the internal resources and staffing capable to
intake the claims (i.e. call center) and assess and direct a TPA, can that be
provided to them? What will it cost? Ensure this is clarified prior to appointing
the TPA.
 Check to see if the client has existing contracts that require them to carry first
dollar coverage
Insurer Responsibilities
It is understood that the underwriting department has new and renewal business targets.
Notwithstanding the pressure to meet these goals, communication between the
underwriting department and the internal claims division must take place prior to binding
coverage. Traditionally, once the business is on the books, underwriting tends to take a
hands-off approach, leaving the claims department in the dark as to what has been
discussed with the insured and their broker.
Does the insured understand the importance of adhering to the SIR endorsement with
respect to the reporting threshold and category claims? Is the existing TPA on the
approved list? What are the internal requirements for claims under the SIR, particularly
as they relate to the internal and external audit processes?
Some insurers believe (after binding) that the insured will report all claims under the SIR
either quarterly or semi-annually. Does the insured understand and agree?
By addressing these questions upfront, potential conflict and misunderstandings can be
avoided. A true SIR program can be a very effective tool for insureds and insurers alike.
The insured has better control over its own risk transfer costs and brand protection,
while insurers no longer have to have the staff and resources to support low deductible
insurance programs.
Failing to ensure that all parties are in agreement with each of these issues before
coverage is bound, conflict and harsh feelings between all parties can crop up. It should
be clear from the onset what everyone’s expectations are.
Maeve Davis is Crawford Adjusters Canada’s vice president, risk management services.
Davis has 20 years experience in the insurance industry and joined Crawford in 2001.
She is a Fellow Chartered Insurance Professional (FCIP) and has achieved her
Canadian Risk Management (CRM) designation. She is also a key member of
Crawford’s Corporate Multinational Risks (CMR) Global Team.