Report on Self Insurance Groups
The Office of Self Insurance Plans (OSIP) has a team of claims auditors that reviews claim files
and identifies inadequate reserves among the sampled cases. other aspects of SIG operations relating to claims handling.
The auditors Audits have
also review certain been successful in
finding under-reserved cases administrator in the activities
and other problems such as improper interference of the claim administrator. One concern, however,
by a program is whether the
audit process is being used to maximum effectiveness. At present, a SIG is required its reserves in the cases found to be under-reserved and to increase its deposit to higher figure for expected future liabilities (EFL). The shortcomings are:
to increase reflect the
There is no extrapolation from the audit sample to the full inventory. Supposing that 100 files are audited and 25 are found to be under-reserved by an average of 40%. It is all well and good to require the reserves in those 25 files to be raised and require the SIG to increase its security deposit accordingly. However, if the sample was representative of the full inventory, that would imply that the entire caseload was under reserved by 10%. OSIP auditors do not select the files randomly and in fact select the cases that were most likely to be under reserved. CHSWC recommends that OSIP consider a pilot program of auditing a random sample of cases and applying the audit findings proportionately to the entire case inventory. The pilot could then be compared to the current method of selecting cases for audit.
There is no adequate incentive for accurate case file reserving. When auditors find cases under-reserved, the consequence is simply to raise the EFL and the deposit to the levels they should have been in the first place. The increased deposit is paid from the SIG’s funds. There is no adverse consequence for the third-party adjusting agent (TPA) that sets the reserves or for the group administrator that oversees the TPA and might (but should not) influence the TPA’s reserving practices. (This is a behavior discovered by some OSIP claims audits.) CHSWC recommends that OSIP consider a graduated series of incentives directed at the group administrator and the TPA that might range from increased special audits to revocation of the privilege of acting as a SIG Group Administrator or TPA.
In addition to looking at the adequacy of individual case reserves, OSIP should be examining the loss development and scrutinizing those SIGs that show unusual patterns. This recommendation is based on the New York experience of some groups having to make large increases in claims reserves which the groups were unable to fund. Comparison of a SIG’s loss development with the experience of other SIGs and the insurance industry would also be informative when deciding whether to begin returning surplus contributions to members as early as 23 months after the end of a program year.