In a recent article published by BusinessWire, Reliance Matrix was ranked as the most popular absence management provider according to Spring’s annual 2023 benchmarking survey. Check out the full article here.

Spring’s Senior Vice President, Prabal Lakhanpal will be presenting at Business Insurance’s World Captive Forum on January 25, 2024. His session will cover new emerging risks and provide tactics for improving captive risk distribution frameworks. You can find the full update here.

As Seen in Captive International’s Cayman Focus 2024


Total cost of risk (TCOR) is a buzzword in the insurance space, but it is a metric that carries significant operational weight, and can mean different things depending upon the organisation. There is no tried and true approach to TCOR, but we have gleaned valuable insights after consulting on the topic across a range of companies and risk profiles.

Leveraging those insights, we are sharing here a foundation for framing TCOR at your organisation, keeping in mind common dos and don’ts we have come across.

What is TCoR?

It’s important to start at the beginning. While there are various definitions out there, the International Risk Management Institute (IRMI) states that TCOR is the sum of all aspects of an organisation’s operations that relate to risk, both the cost of managing risks and the cost of losses incurred. These costs typically fall into the following categories:

  1. Retained (uninsured) losses and related loss adjustment expenses
  2. Risk control costs
  3. Transfer costs
  4. Administrative costs

More sophisticated risk management programmes may have internal risk control costs, whereas for other organisations these may be embedded into what is paid to a carrier with the goal of controlling loss.

Commercial insurance premiums are a prime example of a TCOR driver, representing what you are paying to transfer certain costs to the commercial or reinsurance market. Even for organisations with a captive, which is known to save organisations money in the long term, a risk transfer premium is still happening from the parent company to the captive.

Further, whether or not a captive programme is in place, most companies, especially those on the larger side, still retain a portion of their risk on their corporate balance sheet (eg, cyber deductible).

Building your TCoR

What constitutes TCOR varies across industries and company but regardless it can be backed by sophisticated risk management models as well as simpler calculations.

From a broad perspective, commonly overlooked considerations when it comes to tracking TCOR include:

Perhaps most important is the need for year-over-year consistency regarding what is included in TCOR and what is excluded.

Who uses TCOR?

TCOR is meaningful to different stakeholders depending on the company, but these key audiences have important use cases for TCOR as follows:

Trends and best practices

TCOR should not be touted simply because it sounds good. It needs to be grounded in analytics, formal reviews, and comprehensive reporting that outlines how TCOR is arrived at and what it means for your organisation. For large companies, TCOR may be factored into bidding, procurement, and contract processes. For smaller companies, there may not be enough critical mass to validate a self-funded approach, which means you’re more susceptible to market conditions and capacity.

From an organisational standpoint, TCOR plays a significant role in (i) accountability and compliance; (ii) making sure all assets, certificates of insurance, and contracts are listed; (iii) employees are accounted for; and (iv) there are no gaps in coverage that could change TCOR unexpectedly at the end of the year.

A vital step in TCOR evaluation and a captive feasibility study is considering overarching goals. If your company is looking to stay at cost, then moving to a captive may not always be the best play and you may be better off in the commercial market. This is why, as part of a TCOR analysis that is embedded within a feasibility study process as a means to reduce risk, alternative retentions in the market should be evaluated and the different scenarios to determine whether or not a captive makes the most sense outlined.

Other pieces of TCOR wisdom we have gathered over the years include:

Conclusions

TCOR is complicated, but it is important to take a wide view of all the pieces of the puzzle, and then find the correlations and mitigation strategies available through the buying process. Captives need to understand how to budget for TCOR, how to build it at your organisation, and then how to interpret it year over year.

Strong TCOR practices can lead to improved risk management, smoother claims processes, and overall lower costs, especially for growing companies. A thoughtful TCOR approach serves to unify all your insurance stakeholders, from risk managers to CFOs, in understanding insurance spend and ultimately the total cost of risk.

Captive International has released the winners for the 2023 US Awards. Spring is proud to announce that our Managing Partner, Karin Landry won the Best Feasibility Study Individual. We were also highly commended for Best Actuarial Firm, Top Feasibility Study Firm, and Top Captive Consulting Firm. Our team was also highly commended for the following: Best Individual Captive Consultant (Karin Landry & Prabal Lakhanpal), Best Individual Feasibility Study (Prabal Lakhanpal) and Best Actuary (Peter Johnson & Nick Frongillo).

Spring has been recognized as one of the Top Employee Benefits Consulting firms in Massachusetts by Mployer Advisors, who focus on connecting employers with top-rated insurance advisors. We’d also like to congratulate our colleagues at Boston Benefit Partners, An Alera Group Company, for making the list as well! You can find the full update here.

Our Senior Vice President, Prabal Lakhanpal was featured in a Global Captive Podcast episode, during which they discussed Spring’s client, The Haskell Company. Haskell is a privately-owned engineering, construction and architectural firm that was able to reduce insurance costs, optimize coverage, and introduce new lines of risk by switching to a captive. Check out the full episode here.

Our Managing Partner, Karin Landry was quoted in a recent Captive.com article on potential savings when switching to a captive instead of the commercial market. Check out the full article here.

In Captive Intelligence’s latest Global Captive Podcast episode (#91), our Vice President, TJ Scherer shares details about his new role at Spring and reviews his experience in the captive and P&C arena.

This year during the Vermont Captive Insurance Association (VCIA)’s 2023 Annual Conference, our Managing Partner, Karin Landry shared her insights on top risk financing communication strategies for CFOs and other executives. Check out Business Insurance’s recap here.