SIG Formation

Building the Foundation – SIG Formation

It isn’t easy to establish a successful self-insured group (SIG) and keep it running efficiently over years and decades. That’s why CCMSI has put into place methods that help ensure SIG success now and into the future.

It all begins with the foundation. A SIG must be formed properly in order to work. And, without backing by a professional association, it might never get off the ground. When an association supports the SIG concept, that concept gains instant credibility.

With association support, the SIG business model can then be developed with help from carefully selected business partners, including brokers, a TPA, accountants and additional service companies. Through a very complicated process, the TPA can help the association determine if a self-insured group is wanted by potential members and financially feasible. Then, that TPA can move forward to gain governmental approval, underwriting and handle administrative and management functions, if desired.

In general SIG formation requires:

  • The support of a professional association.
  • A quality board of trustees to represent the new self-insured group.
  • A TPA and other partners with proven track records handling
    the development and management of self-insured groups.
  • Underwriting the program with member companies with proven low loss ratios.
  • Funding the program adequately.
  • Selecting an excess insurance carrier of quality.

Best Practices in SIG Management

Once formed, SIGs must be aggressively and proactively managed to be successful over years and decades. To operate well, every sector – underwriting, claims, loss control and accounting – is reliant on information and data from the other sectors. It is a cyclical process and demands an expert team willing to work together. Trustees of the SIG are also key to its success. They must absorb information from all the management areas and make decisions on behalf of the SIG.

1. The Management Team

When it comes to management, go with experts. Field a management team with experience running SIGs. A TPA with experience managing SIGs will offer the group a wealth of resources to draw upon that they might otherwise lack – industry experience, training, safety and loss prevention strategies and claims technology, among others.

2. Underwriting

With the team in place, management and communication begin. Careful evaluation of new members and existing members is important. A SIG’s underwriter considers the risk of an account, prices the account and determines if that account is one to keep in the group. Underwriting is a continuous and critically important part of SIG management.

3. Claims Management

With CCMSI Best Practices at the forefront, the claims management program should be designed around the SIG’s goals, unique risk exposures and special claim handling. There must be an adequate number of claim adjusters and supervisors in place to manage the SIG’s exposure and risk. Good communication between claimants, employers, the SIG and the TPA makes it easier to resolve claims sooner – saving loads of money in the long run.

4. Safety and Loss Control

Best practices in safety and loss control begin by getting to know individual SIG member companies and gaining their trust. The goal is to establish a long-term partnership with the service provider. To fully benefit from the rewards of loss control, safety services require a consistent and dedicated approach that mirrors the goals of the SIG and its members.

SIGs should strive to identify safety issues and potential exposures through member site inspections, conversations and claim data; develop solutions for those exposures; and track results. Excellent loss control begins with consultants knowledgeable in the inherent exposures of a specific industry. Having existing knowledge allows for proactive service prior to injuries occurring. Additionally, consultants must be familiar with claims data and the identification of trends or issues that point to a problem.

5. Accounting

A SIG’s accounting function drives much of how a SIG is managed year to year. As such, the SIG’s accounting staff handles more than just accounts payable, accounts receivable and the general ledger. They work very closely with investment managers, actuaries, claims and underwriting to manage cash flow, investments of premiums and budgets.

Once again, to ensure best practices, SIGs should contract with an accountant experienced in self-insured groups. There are many state-specific laws SIGs must comply with that relate to taxes, reporting and even investing. To generate additional income on member premiums, SIGs invest extra funds that aren’t needed for immediate cash flow. The accounting facet ensures the investments of premiums fall within state regulations.

At the end of the policy period, third-party actuaries use the accounting records and estimate liabilities, set overall reserves, and estimate premiums for the upcoming policy year. The actuarial forecast offers insight into how the SIG is performing and whether or not the management areas need improvement.

Membership Cultivation & Retention

Finally, with formation established and management processes flowing efficiently, SIGs must work relentlessly to retain and grow membership. Key to retention and growth is a SIG’s ability to educate current and potential members about how the group differs from commercial insurance: by delivering loss-control services tailored to each member’s particular business; hands-on claims management where employers are directly involved in claims resolution; and the potential return of profits based on each member’s loss ratio.

In general, self-insured groups form to help create a stable market within a specific industry for workers’ compensation. Through good communication of a SIG’s potential cost savings and value-added loss control and claims management services, they can effectively retain quality members and attract new ones of similar caliber.

Communication of Value-Added Services

Communication requires effort, and members must be educated and constantly massaged. Through personal, regular contact with its members, a SIG can succeed and retain members year after year.

While face-to-face communication, unique services and member relationships are critical to maintaining retention, other indirect and direct marketing methods also glean results. Sometimes, the hardest part of bringing in new members, is finding them in the first place. That’s why SIGs use multiple techniques for zeroing in on potentially high-quality members.

Brokers

By developing relationships with brokers, SIGs can gain new business. By gaining broker buy-in, SIGs gain the broker’s book-of-business and access to hundreds of prospects.

State Agencies

State agencies often recruit new business, and by aligning with those agencies, SIGs can attract new members. One very successful SIG in Mississippi writes business for start-up companies, but only after the businesses get the green light from loss-control engineers who inspect those companies face-to-face.

Independent Insurance Agents

Independent insurance agents write a huge amount of workers’ compensation business. By providing those insurance agents with incentives and the SIG’s marketing tools – brochures, sales materials and DVDs – it’s easier to gain new members.

Member Referrals

Similarly, by requesting and rewarding member referrals, SIGs can draw new members. Some SIG members are asked for referrals and awarded prizes when those referrals culminate in new business. While there are many avenues for pinpointing possible new members, it helps the salesperson – agents, brokers, TPA representatives or SIG employees – to have back-up: marketing materials that help them close the deal.

Marketing

Since a SIG isn’t structured the same as traditional insurance, the benefits often take time to sink in. That’s why some SIGs market through Web sites, newsletters, seminars or advertising.

In the end, retaining and attracting members comes as a result of constant effort. Year to year, it takes continuous communication, outstanding service, ongoing marketing and professional alliances to do the job well.

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