Self Insureds Need To Monitor Excess or Reinsurer Notification
Do you know if your self insureds has been notified? Workers Compensation excess insurance (reinsurance) can often go unnoticed in all the inner workings as a file progresses towards its conclusion. A reinsurer denying coverage because they were never put on notice is very rare for Workers Comp.
A recent article where the underlying insurer sued their excess insurer pointed out the “rock and a hard place” the excess insurer is placed in when it has no knowledge of a claim that may require payment. Most liability insurers are very careful when it comes to reporting claims that may reach above the primary insurance level.
For instance, an example of where a self insured employer may end up paying out of pocket:
- Employee has serious injury
- Total Incurred (Reserves + Paid) is set at $295,000.
- Small paid amount = $17,400
- Reserves are above the reinsurance reporting threshold of $200,000
- Overloaded TPA claims adjuster and supervisor do not report claim to reinsurer
- Three years later, settlement is recommended that will cause the total claims payout to exceed $300,000.
- TPA decides to report to reinsurer at this late date
- Reinsurer is not happy as they were not involved in negotiating the settlement
- Reinsurer should have had an initial status from the TPA three years ago when the Total Incurred exceeded $200,000
Which party has the ultimate responsibility? The responsibility is with the employer. Of course, the employer could pursue the TPA.
How does a self insured employer avoid this situation? The avoidance mechanism should already be in place. When the TPA contract was agreed upon, were there reserve levels that should have the employer’s approval before the increase by the TPA?
Self insured employers will often remark that the “reserves are not that important” as we do not pay premiums. That may be true, but Workers Comp reserves can also be used as an alert when they reach certain levels – one of them being the reinsurance reporting level.
There are some TPA computer systems that will automatically report a claim to the reinsurer when the reserves reach a certain level. The reinsurer will usually ask for a full report once the TPA system flags a certain claim.
Reinsurers have become more analytical and not just an insurance commodity. Denials of coverage by the excess insurers may become more commonplace.
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