SELFINSURANCEANDHOWITWORKS
Presentedby:GilesBarhamBSc.MSc.ACCA,CII(Cert)
PrinciplesofBiblicalStewardshipadaptedfromhttps://tifwe.org/four-principles-of-biblical-stewardship/ Author:HughWhelchel
1. Principleofownership–– “TheearthistheLORD’s,andeverythinginit,theworld,and
allwholiveinit”Psalm24:1
2. Principleofresponsibility–– “AlthoughGodgivesus“allthingsrichlytoenjoy”nothingis
ours.Nothingreallybelongstous.Godownseverything;we’reresponsibleforhowwetreatitandwhatwedowithit.Whilewecomplainaboutourrightshereonearth,thebibleconstantlyasks,Whataboutyourresponsibilities?Ownershaverights;stewardshaveresponsibilities.”TheHighCalling,BillPeel,2008Accessed:https://www.theologyofwork.org/the-high-calling/blog/not-ownership-responsibility-leadership-stewardship-part-2
PrinciplesofBiblicalStewardshipadaptedfromhttps://tifwe.org/four-principles-of-biblical-stewardship/ Author:HughWhelchel
3. Principleofaccountability–– Weareallstewardsofresource,abilitiesandopportunities
thatGodhasentrustedtoourcare,andonedayeachoneofusmustbecalledtogiveanaccountforhowwehavemanagedwhattheMasterhasgivenus.E.g Parableoftalents
4. PrincipleofReward–– “Whateveryoudo,workatitwithallyourheart,asworking
fortheLord,notformen,sinceyouknowthatyouwillreceiveaninheritancefromtheLordasareward.ItistheLordChristyouareserving”Colossians3:23-24
Howcanweapplytheseprinciples?
–Wedoliveinadangerousworld
– Therearerisks
–Weshouldbewisewhilebeingcaring
Pelandaba PrimarySchoolinBulawayo– ZimbabweSecurityguardsavagelyattackedJanuary2017
Whatisrisk?
• Riskistheexposureofasubjecttoelementsofuncertainty orunpredictability toafavourable orunfavourable eventualitywhichsometimesincludesdanger.
– E.g.Riskcarwillbestolen– Riskofcaraccident– Riskofinjuringothersasresultofcaraccident– Riskofdamagetocarcausedbyanotherdriver
Whatisinsurance?
• AmechanismfortheTransferofthesaidriskfromtheinsuredtoathirdpartyinsurancecompany.
• Theinsuredisabletotransfertheuncertaintyofafutureunknownpotentialrisk/costinexchangeforthecertaintyofafixedpremiumcost.
Linkbetweenriskandinsurance
Insured(WAD) Insurer(ARM)
PaysPremium
RiskTransferred
Asaresultofthisrelationship, insureragreestopayforloss,damageorliabilityasdefinedbythepolicyterms
EXAMPLESOFRISKOURCHURCHINWADFACES1)Reputational2)Donations3)Life4)PhysicalAssets
BuildingValuesVehicles
5)Catastrophic
DoesWADneedinsurancethough?5Yearpropertyanalysisto10th June2017
“Wedon’tmakeclaims!”
Principlesofinsurance
• Inordertobeinsurable,arisk:
– Mustbeafortuitous event– Musthaveaninsurableinterestfromtheinsured– Mustnotbeagainstpublicpolicy
Principlesofinsurance
• Providespeaceofminddependingonriskappetite
• Poolingofrisks– Lossesoffewwhosuffermisfortunearemetbymanywhoareexposedtosimilarpotentialloss
• Equitablepools– anumberofpoolssetup,oneforeachmaingroupofrisks
WhatisSelfInsurance?
• Involvesformaldecisiontoretainriskratherthaninsureit
• Selfinsuranceistheactofnothavinginsuranceatall.
• Theprinciplesofselfinsurancearethatyouwouldcreateareservefundandpaythebillsthattheinsurancecompanywouldusuallycoverfromthesaidreservefund.
WhatisSelfInsurance?
• Requirescarefulplanning• Allocationofspecificresourcese.g.poolsoffunds
• Allocatedfundwithcashreservestobackitup• SelfInsuranceplandocument• Protocolsforacceptance/denialofclaims
SelfInsurance- Thingstoconsider:• Bigclaims• Claimfluctuations• WhichLinesofbusiness?• Expertise/knowledge• Staffingcosts• Currencyexchangeissues• Wherefundsareheld(Country)• Ratestobecharged• Objective/impartialclaimshandlersi.e.dangersofnepotism• Longtermcommitment
– Planstypically“requireathreetofive-yearimplementationperiodbeforeyourcompanytrulyreapsanyrewards”https://theolsongroup.com/pros-cons-self-insurance/
– Expensiveandtimeconsuming
Whatdoespolicystate?
“Fundedself-insuranceprogramstocoverexpectedlossesareacceptableriskfinancingtechniques.However,theexpectedlossprojectionsshouldbebasedonanactuarystudyandshouldhaveexcessinsurancecoveringthecatastrophicexposure”
GCWorkingPolicy2015-2016,S6005,p493
Whatisanactuarystudy?
• “Thescienceofapplyingmathematicalandstatisticalmethodstoassessriskininsurance,financeandotherprofessions.”
• IntheUSA,theseservicescantypicallycost$10,000-$15,000perannumbasedoncomplexityofanalysisandlineofbusinessquantity.
• Asaresultofthestudy,clientcanbeadvisedhowmuchcontributioneachbusinessunitshouldmaketothepooledfund.
WhatisExcessinsurance?
• Actofenlistingthirdpartyinsurancecompanyforhigherlevelsofcoverageintheeventofawholesaleloss.
• E.g.Thirdpartyinsurancepolicytakenoutforalllossesinexcessof$150,000.Effectis:– LowerPremium– Thirdpartyinsurercoversanylossinexcessof$150,000
Principleofexcesscoverage• Theinsured(WAD)istherefore
responsibleforadministrationofclaims,chargingandreceivingpremiumsfromterritoryandproducingguidelinesandpolicydocumentsforallclaimsuptothevalueof$150,000.
• TheExcessInsurerwouldsupporttheinsuredwithanycatastrophicclaims
• e.g.awholeuniversitycampusburnsdownwhichcost$1.2milliontoreplace.Theinsuredwouldpay$150,000aspertheirpolicytermsandtheinsurerwouldpaytheremaining$1.05million
WADretainsanyclaimsuptosay$150,000
ARMoranotherinsuranceprovider
providescoverforportion oflossesinexcessof$150,000
ProsandConsofselfinsurance
Benefits• Customised Plans• ImprovedData• Potentiallowercosts• PotentialLowerpremiums
Drawbacks• Provisionofservices• IncreasedRisk• Recession/Weakeconomic
cycle/claimfluctuation• Muchcapitaltiedup
unproductivelyshouldclaimsneedtobepaid
• Cashreservestaketimetobuildup
Howtosetupaselfinsuranceplan• Considerwhichlinesofbusinessi.e.Property,car,householders,etc.
• CreateSelfinsuranceplandocument• Engagewithactuarywithlosshistoryandfactfindinformationtheyrequire
• Actuarywilladviseonvalueofcontributionfromparticipants(premium).
• Administratorsofthefundwillneedtoestablishmarkuptocoveradmin
• Setasidehumanresourcetomanagefund
Howtosetupaselfinsuranceplan(2)
• Createcomplexpolicydocumentsandwordingclearlyindicatingperilscovered/notcovered
• Collectcontributionsfromvariousentities• Thosewithgreaterrisks(e.g.morebuildings/greaterbuildingvalues)equatetogreatercontribution
Howtosetupaselfinsuranceplan(3)
• Contributionsmustbeplacedasanallocatedfund/sonfinancialstatementsandmustNEVER betouchedforanyotherpurpose
• Potentiallyopenupaseparatebankaccountforeachlineofbusiness(pools)
• Anyexcessinpoolatyearendtransferredtoreserves
• Claimsdealtwithbytrainedemployeesstrictlyadheringtopolicyguidelines
THECULTUREOFSAFETYANDRISKMANAGEMENTSTARTSWITHTHE
LEADERSHIPOFANYORGANIZATION
RISKMANAGEMENTSHOULDBEPART OFMINISTRY,ITISNOT IN
CONFLICTWITHMINISTRY.
IsARMaself-insurancecompany?
• AdventistRiskManagementis,forallintentsandpurposes,aselfinsuranceprogram.
• ThisindicatesthattransactingwithARMandmakingcontributionsisinharmonywithstatutorylegislationinvariouscountriesstatinginsuranceshouldnotbepurchasedoutsidethecountryborders.
MCDERMOTTWILL&EMERYLAWFIRM
BasedonU.S.federaltaxlawandstateinsurancelegalauthorities,itisreasonablefortheSeventh-dayAdventistChurch(the“Church”)totakeapositionthattheactivitiesofGENCONInsuranceCompanyofVermont(“GICV”)donotconstitutethebusinessofinsurance. Applyingthesegeneralprinciples,thispositioncanbeextendedtotheChurch’sthirteeninternationaldivisions.
MCDERMOTTWILL&EMERYLAWFIRM
Thisresultderivesfromfundamentaleconomicprinciples,thetwomostimportantofwhichare(i)that“self-insurance”is“self-funding”whichisnot“insurance”butratherinthenatureofadepositand(ii)that“insurance”requiresdistributingriskexposuresamongasufficientnumberofseparateunrelatedpartiestoinvoketheactuarial“lawoflargenumbers”sothatnoonememberofanaffiliatedgroupissubstantiallypayingforitsownlosses.GICVfunctionsasaself-fundingvehiclefortheChurchanditstax-exemptaffiliates.BecauseGICVfundsnolossexposuresofanyoutsideparties,itdoesnotoperateasatraditionalrisk-bearinginsurer.Caselawandlegislativehistory-supplieddefinitionsof“commercialtypeinsurance”wouldnotincludeGICV’s activitiesbecauseallthefundedrisksareattributabletotheChurchanditscontrolledaffiliates.
ARMself-insuranceSummary
• AdventistRiskManagementwillONLYinsurechurchownedorganisations,employeesandmembersonchurchbusiness.
• AslossesareonlysettledthroughchurchfundedpremiumstheministryofARMisself-insuringSeventh-dayAdventistchurchrisks.
OptionsAvailable1. Attempttoselfinsure(notpolicyendorsed)2. Selfinsurewithexcessinsurancesupport(policy
endorsed)3. SelfInsurewithoutsourcedadministration
function(policyendorsed)4. InsurethroughARM(policyendorsed)5. InsurethroughaproviderotherthanARM
“whichisgivenasuperiorratingbyawell-knowninsurancebrokeragehouseapprovedbyAdventistRiskManagement,Incorporated”(policyendorsed)
EverythingbelongstoGod
• “LORDourGod,allthisabundancethatwehaveprovidedforbuildingyouatempleforyourHolyNamecomesfromyourhand,andallofitbelongstoyou.”1Chronicles29:16
–Weare stewards/faithfulandresponsibleservants
–Weshouldbewiseandcaring(Matt10:16)
QUESTIONS?
THIS POWER POINT PRESENTATION AND ANY MATERIALS DISTRIBUTED ARE FACT BASED GENERAL INFORMATIONAND SHOULD NOT, UNDER ANY CIRCUMSTANCES, BE CONSIDERED SPECIFIC LEGAL ADVICE REGARDING APARTICULAR MATTER OR SUBJECT. PLEASE CONSULT YOUR LOCAL ATTORNEY OR RISK MANAGER IF YOU WOULDLIKE TO DISCUSS HOW A LOCAL JURISDICTION DEALS WITH ANY SPECIFIC CIRCUMSTANCES YOU MAYBE FACING.