The Art of Self-Insurance

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Presentation transcript:

The Art of Self-Insurance Max Koonce, Senior Director, Risk Management, Walmart Stores, Inc. Marc Salm, Vice President, Risk Management, Publix Super Markets, Inc. Dave North, President and CEO, Sedgwick Session FIN201 Wednesday, April 18, 2012 10:15 a.m. - 11:30 a.m.

Dave North President and CEO Sedgwick

What is self-insurance?

How does self-insurance compare to alternative programs?

What are the keys to an effective self-insurance program?

What are the current realities facing self-insurers today?

Publix Super Markets Publix Super Markets, Inc. is a private but widely held grocery company with its corporate headquarters in Lakeland, Florida. Publix is the largest employee–owned grocery store in the United States.

Publix Super Markets Publix operates 1051 stores in five southern states: Florida, Georgia, South Carolina, Tennessee and Alabama. In 2011, Publix sales were over $27 billion.

Publix Super Markets In 2011, Publix was ranked No. 102 by FORTUNE®. Publix has been recognized for 14 years straight as one of FORTUNE® magazine's "100 Best Companies to Work For."

Publix’s Casualty Program Self-insured retentions Deductibles Corridors “Step ups” Self administration of claims Third party administration of claims All designed with the help of our broker.

Publix’s Retentions Corridor Deductible Deductible Front Corridor Deductible Deductible Front Step Up Ded (one time) SIR WC General Liability Druggist Fleet D&O Fiduciary ODL (outside boards) Professional E&O Publix Charities

Evolution of a Casualty Program Objectives Minimize Total Cost of Risk and corporate SG&A Optimize the efficiency of the insurance purchase Understand and control (where possible) impact to F/S Manage internal business unit budgets and behavior Maximize claim control (management and settlement) Alternative Risk Finance Self-Insurance Captive Program Flexibility / Cash Flow Loss Sensitive Plans High Deductible Guaranteed Cost Financial Volatility

Risk Finance – Decision Process Quantify Risk @ Retention Options Retention Decision Insurance Transfer Keep Funding Decision Post-Loss Funding Options No Pre-Loss Funding Strategy Guaranteed Cost Small Deductible Large Deductible Self-Insurance

Considerations Impacting Design Financial Operational Cash position Effective tax rate Cost of capital LOC capacity & cost Need for admitted paper (vendors, regulators) Cost predictability Risk tolerance

Guaranteed Cost Simple TCOR = GC premium No cash flow advantage 100% of risk transferred to insurer Budget certainty No collateral and escrow Claims administration included Works for low risk tolerance; high corporate tax rate No cash flow advantage Driven more by carrier portfolio rather than individual risk No immediate credit for good loss experience No real control over claims handling Simple Program Structure