Frequently Asked Questions
What is the intended purpose of establishing this trust? What are the benefits and potential risks involved with establishing a Trust like this?
1. Combining individual policies into one common policy without sharing limits. Examples include Crime, Foreign and Kidnap and Ransom. Target date: November 1, 2016
2. Combining policies into one common policy with an element of limit sharing. Examples include Pollution Liability, Cyber Liability and the possibility of Excess Liability (limit levels in excess of individual member limits). Target date: November 1, 2016
3. Creation of a self-insurance pooling program for all Casualty coverages including General Liability, Auto Liability, Educators Legal Liability, Employment Practices Liability, Sexual Abuse and Molestation Liability, Law Enforcement Liability and employee Benefits Liability. See Addendum A. Target date: Mid 2017 or earlier
4. Creation of self-insurance pooling program for all Property, Inland Marine and Mechanical Breakdown coverages. Target date: TBD based upon improvement of loss experience.
5. Creation of a self-insurance pooling program for employee and student related coverages including Health and Benefits, Student Accident, Student Medical, Athletic Accident and Workers’ Compensation. Target date: TBD
Why are we establishing the trust through the Illinois Religious and Charitable Risk Pooling Trust Act? Aren’t there any other avenues by which the trust can be established?
In order to accomplish the objectives noted above conventional insurance companies including excess and reinsurance companies would need to work with a common entity through the creation of a captive insurance company, risk retention group or a trust. After considerable research it was determined that a captive insurance company formed in the traditional captive domiciles such as Bermuda, Vermont and Cayman or an RRG formed in a specific state, would require a considerable amount of capital in addition to premiums for excess and reinsurance. This would cause a financial burden on our current membership.
The formation of a trust would allow us to meet our objectives without funding for additional capital. For example, if we created a protected self-insurance program a loss fund would be established and fully funded through current member premiums. Because each member is separately incorporated in their respective states, the creation of a trust is required in order to share the payment of losses through the established retention/loss fund. Even though all schools are affiliated with the Nazarene Church, individual members cannot share losses through a common loss fund across state lines. Furthermore, since the NHEIC added Trinity Christian College to their program and has interest in expanding the program to other Christian colleges and universities with like- minded missions and philosophies such an entity would need to be created. The Illinois Religious and Charitable Risk Pooling Trust will allow the NHEIC to accomplish its goals without meeting capital required of other risk sharing structures. The Illinois Religious and Charitable Risk Pooling Trust is a proven mechanism. An example of a successful entity that has used this legislation is the Christian Brothers Risk Pooling Trust.
Which insurance coverages will be addressed by this trust? What insurances are not covered through this trust and why not? Will the trust be able to provide better coverage with this trust versus purchasing insurance on the open market?
All Property and Casualty; and Health and Benefits coverages can be written through the Trust. The decision to include certain coverages depends upon the exposure and loss experience of the group. For example, because of the volatility of Pollution exposures the NHEIC may wish to insure this coverage on a first-dollar basis with an insurance company rather than in a selfinsurance arrangement.
Any coverage written in the trust would be much broader as compared to what is available in the standard insurance marketplace. A trust allows the group to include those coverages to protect exposures they feel are manageable. The trust has the ability to eliminate conventional insurance company language and create your own tailor-made coverage wording through the creation of your own Memorandum of Coverage. For example, current insurance language may be vague on reporting requirements involving minors on campus claims. The NHEIC Memorandum of Coverage can expand and be clearer on the issue. A Memorandum of Coverage can provide broader or more limiting coverage based upon the decision of the Trust Beneficiaries.
Is there a financial benefit to buying insurance through the trust? (Read: is it going to cost us more or less than what we are paying for now)?
2. Develop a program whereby the group can take on a larger retention through an established loss fund as opposed to members taking on their own higher retentions. By doing so, this reduces the cost of excess insurance. Funds not spent from the loss fund would develop surplus plus investment income. Surplus can be used to pay member dividends, reduce future premiums and/or to take on higher retentions to further decrease excess or reinsurance premiums. Through the proper structure, conservative funding and focus on seeking aggressive excess insurance alternatives, we see no reason why the membership would pay any more premium than they are paying today.
What is the total estimated cost for each school as compared to what they are paying presently? What additional costs will be incurred as a result of being in this Trust?
- Combing policies into one common policy – 5-10%
- Combining policies into one common policy with an element of limit sharing – 10-20%
- Creation of a self-insurance pooling program for all casualty coverages – See Addendum B. for projected consortium savings. At this time, individual savings have not been determined.
member savings in addition to establishing a funding formula developed and approved by
the Trust Beneficiaries.
protected self-insurance is established we would have costs associated with our own loss
control, claims management, actuary, accounting, audit, program administration and legal.
These costs would be paid through the current premium, broker fee and NHEIC program fee.
How will the purchasing of the insurance/making payments to the trust work in comparison to what is being done at present?
There will be nothing different.
How will submission and payments of claims be made in this structure? Will it differ from how it is handled now?
1. Combing policies into one common policy – no different than current arrangement
No different than current arrangement.
3. Creation of a self-insurance pooling program for all casualty coverages – Claims will be
adjusted and paid by your dedicated Third Party Administrator (TPA). The TPA will be
selected and contracted directly with the trust.