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LDD vs self-insurance
- LDD is a first dollar, fully insured policy w insr providing all services and paying all losses, w an endorsement that requires insured to reimburse all losses up to a deductible
- self-ins only brings in an insr for XS covg. Have to self-serve lower losses or hire a TPA
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Pricing LDD
- M1: P = Full Covg - Exp reimbursable
- M2: P = [EL(XL+ULAE+LBA)+SP(GO+ER)]/(1-A-T-P)
- XSWCP = [EL*XL*(1+ULAE)+SP*GO]/(1-A-T-P)
- LBA: loss based assessment; SP: manual premium
- GO: general overhead; CR: compensation for credit risk
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Considerations for a particular insd that might make industry-wide ELPPF inappropriate
- nature of the insd's business: unusual exposure to certain types of risks or unusual current business conditions
- insd's prior loss history
- insd's attitude towards workplace safety
- potential overlap btwn ELPPF & insurance charge
- whether ALAE is rated w loss
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Why LDD expense ≥ fully insured plan
- expense related to seeking reimbursement from insd
- data reporting more complicated since info seggregated
- expense associated w producing LDD endorsement
- potential expense of upgrading computer systems to handle LDD
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Why LDD riskier for insr than fully insd plan
- XS harder to estimate
- reserve duration > XS loss, more int rate risk
- credit default risk is higher
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Why XS plan risker than LDD
- insr does not control claim handling
- competition is almost exclusively on price so profit is low
- payout period longer
- Insurer Risk Level: Fully Insd < LDD < XS plan
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