In a recent article published by Yahoo Finance, Reliance Matrix was ranked as the most popular absence management provider according to Spring’s annual 2023 benchmarking survey. Check out the full article here.
In a recent article published by BusinessWire, Reliance Matrix was ranked as the most popular absence management provider according to Spring’s annual 2023 benchmarking survey. Check out the full article here.
Spring’s Senior Vice President, Prabal Lakhanpal will be presenting at Business Insurance’s World Captive Forum on January 25, 2024. His session will cover new emerging risks and provide tactics for improving captive risk distribution frameworks. You can find the full update here.
As we enter 2024 in an interesting economic and workforce environment, benefits professionals are once again looking to get creative with their offerings and ensure that they align with cultural and corporate objectives as well as budget.
There is one benefit in particular that, while not new, has been gaining traction over the last few years and we expect continued momentum and adoption in 2024: lifestyle spending accounts.
What is a Lifestyle Spending Account?
A lifestyle spending account (LSA) represents a range of flexible benefits accounts that employers can offer to employees as funds toward eligible expenses related to health, wellness, and personal needs and interests. The employer defines what an LSA can be used for, with many companies including pet care or services, travel, leisure activities, and home improvement within their list of qualifying expenses. In this way, they cover a much broader spectrum of needs beyond those that are applicable within a Flexible Spending Account (FSA) or Health Savings Account (HSA).
Pros and Cons
Many employers are considering or implementing LSAs for their employees because they provide the following key advantages:
- Entirely customizable based on what would make a positive impact on your unique employee base
- Allow for enhanced diversity, equity and inclusion (DEI) within your benefits program
- No budgetary surprises: employers decide on what they will contribute and if employees do not take advantage of the LSA, that money will not be spent, and the employer dictates whether or not funds can roll over year over year
- Generally not a big ticket item; contributions typically range from $500 – $2,000 per employee per year1
- Ability to design an LSA based on wellbeing goals that could contribute to a healthier, more productive workforce
- Demonstrates compassion and a commitment to employees that can lead to increased engagement, recruitment, and retention
- Can lessen the need for multiple point solutions which can create significant administrative burdens
- Relatively simple and fast to set up
LSAs aren’t for every company, though. Some factors that might indicate an LSA isn’t the right path are:
- Awareness: as with every facet of a benefits program, the employer will need to be thoughtful in communicating the LSA option
- Possible duplication: depending on your health plan, point solutions, and other wellness programs, you may need to be careful in designing an LSA that is not redundant to other offerings
- Compliance considerations: while typically not the case, legal and tax implications (e.g., ERISA) may exist for LSAs that account for certain health expenses
- LSAs are a taxable benefit, unlike pre-tax options like 401(k) plans, HSAs, and health insurance, so there will be different types of financial ramifications for employees who participate
Looking Ahead
LSAs are becoming more and more popular; a 2023 Benepass study shows that 51% of companies are offering this benefit, as compared to 37% in 2022. Optum’s 2022 Financial Lifestyle Benefits Research found that 37% of benefits professionals were planning to add to or update an LSA in the coming year. At Spring, it has been a topic of interest for many of our clients as we refine our strategic benefits plans and consider program enhancements. If you are interested in an LSA but need guidance around implementation, processes and best practices, please get in touch and we would be happy to help you explore the option.
With winter quickly approaching, the Cayman Captive Forum last week provided a great escape from the cold weather and a fantastic excuse to visit a tropical paradise. As Cayman is the second largest captive domicile (behind Vermont), it is more than a vacation spot; a rewarding opportunity to address top trends and practices in the captive insurance and risk management space. Here are some driving topics of interest this year:
AI and Risk Management
As concerns surrounding artificial intelligence (AI) dominate headlines and conversations worldwide, it was only fitting that it was a popular topic of discussion this year at Cayman. AI holds an interesting position in risk management, in that it can be used to help identify risks and create efficiencies; but also can create vulnerabilities in cyber and digital. Here are a couple of innovative sessions on AI’s impact on risk management:
– During the presentation “AI and your Captive,” beverage distributor, Southern Glazer’s Wine and Spirits explained how they were able to optimize their captive using AI and machine learning tools.
– In the eye-catching session, “Chat-GPT/AI Concerns in Claims/Risk Settings,” risk experts reviewed how AI is being used in cyberattacks, especially towards healthcare organizations. They also examined the recent emergence of AI chatbots in healthcare.
Cyber Risks
This year there have been over 327 healthcare data breaches reported to the US Department of Health and Human Services, involving more than 40 million patients’ data1. Cyber is a top priority for risk managers, especially those working for healthcare employers. Here are some highlights:
– The session, “Complex Cyber: Renewal to Claims” looked at current cyber insurance market trends for healthcare organizations and recommendations for protecting patient information from adverse incidents.
–With emerging technologies, cybercriminals have more tools than ever at their disposal. A presentation titled “Cybersecurity Trends and Tomorrow’s Challenges: Future-Proofing Your Organization” highlighted strategies to combat evolving cyber threats.
Risk Face by Healthcare Organizations
As Cayman is the largest domicile for healthcare organizations2, healthcare-related risks receive a lot of buzz each year, and 2023 was no exception. Healthcare organizations face unique challenges, some of which include:
a) Social Risks
Within the healthcare sector, risk management teams must balance distinctive social and legal issues on top of day-to-day operations. Some noteworthy sessions included:
– The presentation, “The Impact of Social Inflation on Captives and Others,” reviewed shifting trends in medical professional liability and explored how risk management teams can better understand changing social influences and the risks tied to them.
– One engaging session entitled, “Reproductive Care Post-Dobbs: Protecting Patients and Providers,” provided insights into how a healthcare organization was able to identify emerging risks associated with reproductive care.
b) Workplace Safety and Medical Malpractice
With unique risks come unique coverages. Healthcare organizations often must turn to specialty insurers and experts to evaluate risks associated with workplace violence and medical malpractice. These topics were widely discussed during the conference:
– In the one-of-a-kind session, “Active Shooter Workplace Violence – Claims Coverages Consequences,” the Captive Owner from the University of Pittsburgh Medical Center drew takeaways from their mass shooting over a decade ago.
– A session on “Implementing Structured Communication Processes to Avert Malpractice Claims & Reduce Patient Harm” spotlighted how nearly half of malpractice claims come from miscommunication and provided suggestions on streamlining communication.
– The final session of the conference “People Behaving Badly” reviewed a high-profile case where medical providers harmed patients and professional liability considerations for healthcare companies when disciplining or terminating staff.
c) Other Priorities
In addition to the topics discussed above, some other notable healthcare industry-focused sessions included:
– As virtual care continues to be popular post-pandemic, a group of risk experts discussed recommendations for “Managing the virtual practice of medicine in multiple states & the unique risks associated with this practice.”
– In a virtual session, “A total guide to total cost of risk,” an actuary and captive consultant discuss how to properly calculate and identify Total Cost of Risk (TCOR) and suggestions on how to adjust to changes in TCOR.
The Cayman Captive Forum was a strong finish to the year in terms of lessons learned and connections made. The farewell beach party is always an added bonus! We welcome this chance to reflect back and look forward to what 2024 has in store for the captive space.
1 https://www.urologytimes.com/view/health-care-cyberattacks-soaring-in-2023
2 https://caymanintinsurance.ky/about/
As Seen in Captive International’s Cayman Focus 2024
Total cost of risk (TCOR) is a buzzword in the insurance space, but it is a metric that carries significant operational weight, and can mean different things depending upon the organisation. There is no tried and true approach to TCOR, but we have gleaned valuable insights after consulting on the topic across a range of companies and risk profiles.
Leveraging those insights, we are sharing here a foundation for framing TCOR at your organisation, keeping in mind common dos and don’ts we have come across.
What is TCoR?
It’s important to start at the beginning. While there are various definitions out there, the International Risk Management Institute (IRMI) states that TCOR is the sum of all aspects of an organisation’s operations that relate to risk, both the cost of managing risks and the cost of losses incurred. These costs typically fall into the following categories:
- Retained (uninsured) losses and related loss adjustment expenses
- Risk control costs
- Transfer costs
- Administrative costs
More sophisticated risk management programmes may have internal risk control costs, whereas for other organisations these may be embedded into what is paid to a carrier with the goal of controlling loss.
Commercial insurance premiums are a prime example of a TCOR driver, representing what you are paying to transfer certain costs to the commercial or reinsurance market. Even for organisations with a captive, which is known to save organisations money in the long term, a risk transfer premium is still happening from the parent company to the captive.
Further, whether or not a captive programme is in place, most companies, especially those on the larger side, still retain a portion of their risk on their corporate balance sheet (eg, cyber deductible).
Building your TCoR
What constitutes TCOR varies across industries and company but regardless it can be backed by sophisticated risk management models as well as simpler calculations.
From a broad perspective, commonly overlooked considerations when it comes to tracking TCOR include:
- Beyond the frictional carrier or captive out-the-door premiums, other items budgeted for on the insured side such as safety programmes, loss control, and bonus programmes should be evaluated for inclusion or exclusion. If they are tracked within a captive premium (as is typically the case with loss control), such items are captured already so a company needs to be cognisant of not double-counting.
- Investment and underwriting income. Generally captives are priced to earn underwriting income and also earn investment income on the held assets to pay for unpaid claims. This income should be accounted for, which results in a lower TCOR.
- Softer costs such as risk management or safety personnel should be assessed for inclusion. Overall, consideration beyond obvious face-value expenses and including ancillary factors across the company provide a more robust calculation. Actuarial estimates of claims should be utilised for validation. Avoid relying solely on loss runs as this creates volatility because the third-party administrator (TPA) is typically only booking case reserves in the incurred claim estimates without factoring in the actuarial incurred but not reported development.
- Evaluation dates and look-back periods provide for quality tracking and the generation of trends, and should be assessed at various points in time. This is important when trying to compare the costs of various programmes related to budget and cash flow.
Perhaps most important is the need for year-over-year consistency regarding what is included in TCOR and what is excluded.
Who uses TCOR?
TCOR is meaningful to different stakeholders depending on the company, but these key audiences have important use cases for TCOR as follows:
- Risk managers leverage TCOR to show how they are approaching risk management and demonstrate how the company should retain risk, either through a captive premium or another method, as well as recommend what portion of risk should be transferred.
- Finance/accounting departments use TCOR to stress test and illustrate how much the organisation can afford and then plan for budgetary items that should reduce stated risk.
- Property and casualty (P&C) brokers care about TCOR because it enables them to benchmark and perform retention analyses in order to optimise programmes and mitigate volatility for their clients. TCOR allows them to make an apples-to-apples comparison year over year.
Trends and best practices
TCOR should not be touted simply because it sounds good. It needs to be grounded in analytics, formal reviews, and comprehensive reporting that outlines how TCOR is arrived at and what it means for your organisation. For large companies, TCOR may be factored into bidding, procurement, and contract processes. For smaller companies, there may not be enough critical mass to validate a self-funded approach, which means you’re more susceptible to market conditions and capacity.
From an organisational standpoint, TCOR plays a significant role in (i) accountability and compliance; (ii) making sure all assets, certificates of insurance, and contracts are listed; (iii) employees are accounted for; and (iv) there are no gaps in coverage that could change TCOR unexpectedly at the end of the year.
A vital step in TCOR evaluation and a captive feasibility study is considering overarching goals. If your company is looking to stay at cost, then moving to a captive may not always be the best play and you may be better off in the commercial market. This is why, as part of a TCOR analysis that is embedded within a feasibility study process as a means to reduce risk, alternative retentions in the market should be evaluated and the different scenarios to determine whether or not a captive makes the most sense outlined.
Other pieces of TCOR wisdom we have gathered over the years include:
- Fluctuations will happen from year to year, but some of the more volatile components are captive income and retained claims.
- A common misconception is that by increasing retention, lowering limits, or both combined, a reduction in TCOR will automatically occur. This may be true but is not necessarily so, as these practices could also expose the company to more risk than anticipated and that loss potential may not be appropriately projected.
- Consider this: with cyber and umbrella coverage becoming expensive for companies, let’s say you drop cyber entirely and lower limits to reduce TCOR by 5 percent. But then there’s a $3 million loss within that layer that would have been covered by policies you no longer have, so even though your budgeted TCOR went down by 5 percent, your realised TCOR increased by 10 percent due to the new loss.
- Analysis should consider different scenarios: what could happen, versus a straight-line evaluation.
- Ensure that at the time of increasing or decreasing a limit or removing a policy altogether, all parties agree to this move and it is documented to avoid questions after the fact.
- Benchmarking TCOR should be taken with a grain of salt, as practices are varied and factors such as captive versus no captive, geographic risk class differences, treatment of risk management admin costs, inflation and payroll may be working behind the scenes and can prohibit a direct comparison between two different organisations.
Conclusions
TCOR is complicated, but it is important to take a wide view of all the pieces of the puzzle, and then find the correlations and mitigation strategies available through the buying process. Captives need to understand how to budget for TCOR, how to build it at your organisation, and then how to interpret it year over year.
Strong TCOR practices can lead to improved risk management, smoother claims processes, and overall lower costs, especially for growing companies. A thoughtful TCOR approach serves to unify all your insurance stakeholders, from risk managers to CFOs, in understanding insurance spend and ultimately the total cost of risk.
Title:
Consultant
Joined Spring:
I joined Spring in July 2017, shortly after I graduated from college.
Hometown:
I was born in Maine but grew up in Stockton, NJ. It’s a really small town and my elementary school only had about 60 people in it total.
At Work Responsibilities:
I work on our Absence Management Team and primarily help clients with their absence policies, as well as health and Rx plans. I also spend a lot of my time monitoring the paid leave landscape and updating our clients on legislative developments that may impact their leave programs throughout the country.
Outside of Work Hobbies/Interests:
I recently moved back to NJ and spend a lot of my time with my family and dogs, reading, and exploring my new neighborhood.
Fun Fact:
I spent a semester studying abroad in Cape Town, South Africa!
Describe Spring in 3 Words:
Dedicated, Invested, and Fun
Favorite book (or one you’ve recently read):
I just finished All The Light You Cannot See. I don’t think I can pick an overall favorite book.
Pets:
My family dog Scout (Chocolate Lab) and my “nephew” Alan (Red Lab) but I consider them mine 😊
Captive International has released the winners for the 2023 US Awards. Spring is proud to announce that our Managing Partner, Karin Landry won the Best Feasibility Study Individual. We were also highly commended for Best Actuarial Firm, Top Feasibility Study Firm, and Top Captive Consulting Firm. Our team was also highly commended for the following: Best Individual Captive Consultant (Karin Landry & Prabal Lakhanpal), Best Individual Feasibility Study (Prabal Lakhanpal) and Best Actuary (Peter Johnson & Nick Frongillo).
After operational difficulties posed by the pandemic settled, a large, global hospitality organization wanted to refocus on employee health and productivity, with operational efficiency and risk management in mind. With an emphasis on the employee experience, the client engaged Spring to conduct a review of their workers’ compensation, disability and leave of absence plans, policies and processes with the goal of understanding how they compare to industry best practices and how insourced, outsourced, or cosourced models could yield improvements.
Spring’s Work
After thorough research and analysis, we proposed a shift from the decentralized, separate, and insourced disability and LOA model to a centralized, integrated, and outsourced approach across WC, FMLA/LOA, ADA, RTW and STD/LTD. Our holistic model incorporates:
- Minimal disruption by utilizing existing STD/LTD vendor for disability & LOA management and recommendations to optimize this partnership and establish linkages with WC vendor
- LTD and STD continue to be funded through the captive
- Client team hiring plan/staffing model
- ADA claim management software
- Training for HR, managers, and vendors to align on both process and culture
- Best practices for intake, claim, submission, and customer service journey points
- Case management, claims administration, RTW and accommodation management
- Ongoing absence status and reporting/metrics
- Technology and administration partners to meet needs
- System integration with payroll, HRIS, and other systems
By outsourcing, the client can achieve its goals of:
- Increasing operational efficiency
- Improving employee health and productivity
- Applying the right resources at the right time
- Reducing administrative burden for client team
- Mitigating risk by transferring the responsibility for day-today absence tracking, management and compliance to a third party
The Results
Spring is working to implement the solution to yield the following quantitative and qualitative success factors:
Qualitative
- Decreases colleague and manager confusion and better the employee experience
- Positions HR in an advocacy role; enhance the ability to inform and remind employees of benefits and resources they have available to them to help during a time of need
- Increase employee satisfaction regarding applying for days off
- Better communication and integration between benefits and risk management teams
Quantitative
- Decreases claims costs that flow through to client’s captive (and number of claims, or incidence), leading to higher savings
- Due to formalized processes and reporting
- Reduces benefit payout amount
- Enhances productivity due to fewer lost workdays (lessen duration of leaves) and stronger RTW
- Due to early intervention, strong policy provisions, RTW and accommodation philosophy and tight benefit coordination
- Lowers replacement costs when colleagues are out
- Avoids legal claims and lawsuits
- Anticipates close to $10M of direct savings over a 5-year period and a conservative ROI projection (savings minus expenses): $1.2M
Have questions about how to build or improve your absence management program to see tangible results like these? Check out our website or get in touch today.