Understanding Risk
The Preferred Builders Self-Insured Group (PBSIG) is a workers’ compensation cooperative – members pool the money they usually give to an insurance company so they can have greater control over how that money is used. Insurance companies profit from the money they receive from the companies they insure. PBSIG takes those dollars and makes them work for the employer member.
The members of PBSIG may see a financial return, in the form of a dividend, and they are also responsible, as a group, for the liabilities of the program – claims costs and associated expenses. This is the risk in the program. Compared to the risks that contractors face every day in their businesses, the level of risk in PBSIG is minimal, while the rewards are great.
There is real risk for contractors with traditional insurance companies. For example, insurance companies do not have an incentive to manage and close claims as open claims increase their revenue. A badly managed claim will increase the operating costs for a business over a three-year period, through the experience modification rating process. Increased costs, reduced competitiveness – that is dangerous for any business.
Here is how the protection for members of PBSIG works:
A. The Group
The rates paid by PBSIG members are based on studies by a certified actuary that predict the funds that will be needed to pay for all of the projected liabilities of the group. These studies are done on a very conservative basis. Each member pays into the pool according to their own payroll and experience, just as they do with an insurance company. The pool absorbs the costs of all members – if a member has poor claims experience during a year, it is absorbed by the pool. A member does not need to pay “extra” because they have had a bad year.
If PBSIG needed to collect additional funds for future claims costs, each member would contribute according to their relative size in the group. For example, if the group’s actuary determined that PBSIG needed to add $300,000 to its pool, the group could do this either by raising its rates to all members or by having a “special assessment”. In this example, a member who was contributing 1% of the overall pool would need to pay an additional $3,000 in such an assessment.
There has never been a special assessment in the history of PBSIG.
B. CHSI
CHSI is a team of professionals with many decades of experience in the design and management of workers’ compensation programs. In Preferred Builders, CHSI begins with a careful underwriting process that identifies contractors who can be positive contributors to the program. The CHSI safety and claims team is the best in the industry – PBSIG members receive a level of customized support that is not generally available to contractors. CHSI prepares detailed monthly financial and operational reports for the Board of Trustees – a board comprised of PBSIG owners and executives who manage the financial affairs of their own businesses each day.
C. Complete and Total Coverage
Members of PBSIG are comprehensively protected against catastrophic claims – fatalities and very serious injuries – through excess insurance with an A VIII rated insurance carrier. In the event of such a claim, PBSIG will pay the initial $400,000 and the excess insurance carrier will pay all additional costs for the life of the claim. This coverage also extends to all claims that come from a single occurrence. If there was an event that produced two fatalities and five serious injuries, PBSIG would pay a total of $400,000 for all of the claims. The excess insurance carrier would pay for all additional costs, no matter how many millions of dollars were involved. Members have complete and total coverage against catastrophic claims.
