Agency partners: By the numbers

Actuarial services are important to agencies with self-insured clients

By Michael J. Moody, MBA, ARM

Today’s progressive agents and brokers realize that a significant trend has been occurring over the past few years. It is no longer just the Fortune 500 corporations that are moving to some form of self-insured retention for their insurance programs. Many mid-sized corporations have also observed the benefits of moving toward more aggressive risk financing programs. As a result, mid-sized agents and brokers are having to locate capable independent service providers to supplement their own staffs.

Parker, Smith & Feek (PS&F), an Assurex Global partner agency located in Seattle, Washington, has also found this to be true. The agency has stressed teamwork as a core value since its beginning in 1937, and where it does not have the expertise within, it looks for outside service providers to assist in providing its clients and prospects with the needed value-added services. According to Jim Chesemore, chief operating officer, “We are a brokerage firm that values teamwork in order to ensure the delivery of excellence.”

Building professional relationships

One of the areas where the PS&F team saw a growing need was actuarial services. After an introduct­ory luncheon with a number of actuaries from the Seattle office of Milliman, they realized that they had found another member of their team. David Kennerud, FCAS, MAAA, a principal and consulting actuary who serves as the manager of the property and casualty practice notes, “We both were eager to explore the possibilities of working together.” After that meeting, Milliman began to assist PS&F with a number of its risk financing feasibility studies.

According to Kennerud, it is important to determine just how best to work with an actuary. He says that one of the most important aspects is to be given sufficient time to develop and validate loss projections. He points out that early involvement is a key to a successful relationship. “It is always good to begin any funding study at least two to three months prior to a renewal.” This way, he says, you will allow adequate time to not only determine the correct loss projections, but to explain the options to the client.

And Kennerud states that while sufficient time is important, it is also necessary to obtain recent and relevant loss and exposure data. If the client is a current insured of PS&F, collecting the needed data usually does not present a problem. However, if the study is being done for a prospect of the agency, obtaining valid data can be a little more challenging.

Things are not always as they appear

Washington is a monopolistic state with regard to workers compensation and, as such, self-insurance is a popular alternative for the state’s employers. In the traditional monopol­istic state environment, employers can usually benefit from implementing a self-insured program, but “Washington is unique,” says Kennerud. “The workers compensa­tion statutes have a very unusual aspect, not found in any other state.” Workers compensation premium is basically made up of two major segments, he notes, “the indemnity portion and the medical portion.” When an employer chooses to insure its exposure via the state fund, the employer can charge half of the medical portion to the employee through a payroll deduction.

“In fact,” Kennerud points out, “this charge even shows up on the employee’s W-2 statement.” Unfortun­ately, if the employer decides to self-insure its workers compensation exposure, it loses this feature and cannot charge it back to the employee.

So, Kennerud indicates, “It is more important than ever to obtain a comprehensive feasibility study for those PS&F clients and prospects.” He also says another important aspect of a workers compensation analysis is a review of the State Fund’s Security Report. He says this report is provided by the state and determines the amount of bond that is required from self-insured employers. “A review of these calculations should be routinely completed to check for correctness.” Such projects are similar to other services that Milliman performs for PS&F to “assist them in the marketing and placement of coverages.” Addition­ally, the actuary assists with the ongoing educational effort for PS&F’s clients and prospects.

Other value-added services

Of course, it’s not just the workers comp area in which Milliman actuar­ies assist PS&F. The agency also has a sizable book of medical malpractice business. Kennerud points out that several years ago, “When several large med mal insurers like St. Paul left the state, there were few options for hospitals or doctor groups.” One viable alternative for many of these organizations was self-insurance. PS&F was able to provide assistance for a number of local hospitals, and Milliman was able to provide on-going actuarial support.

In addition, Craig Keizur, FSA, MAAA, principal and consulting actuary, notes that Milliman has also been involved with PS&F from an employee benefit standpoint. He indicates that over the past few years, Milliman has completed a number of projects for PS&F clients. He says that many of these projects have involved “various cost containment programs, as well as assisting with wellness program implementation.”

Further, Keizur says that the passage of the new health legisla­tion will result in numerous educational opportunities for many brokers and agents. He believes that the proper development of a revised health approach based on the new law will be important to all employers. And brokers can provide an important value-added service by helping employers with this effort. He points out that Milliman has already begun to “develop a strategic, thoughtful approach to this important topic.” He also adds that Milliman will work with all of its clients and partners, such as PS&F, to provide “the essential education necessary to fully understand the new law.”

Conclusion

PS&F has identified several professional outside service providers that allow it to provide a full range of value-added services to its clients. One of these primary relationships is with the consulting actuarial firm of Milliman. While both PS&F and Milliman have their offices in Seattle, it was the quality of Milliman’s service and its ability to communicate effectively that sealed the deal.

Quality service and effective communications, along with the fact that Milliman is an independent consulting actuarial firm, has helped to expand the working relationship between the two firms. Kennerud points out that his firm’s indepen­dence is an important factor when working with agents and brokers like PF&S. “We don’t have any competing brokerage services and are not always trying to sell additional services.” From a realistic standpoint, Milliman is an extended part of the PS&F team. And as Jim Chesemore points out, “These are the kinds of long-term relationships that have made PS&F the success it is today.”