Avoiding Future JPA Assessments
Insurance JPA's pool their members' annual contributions
to create a loss fund to pay the claims that the JPA will incur that year. In a good year losses are less than projected,
and there is a surplus. In a bad year losses exceed contributions and there is a deficit. Most JPA's have a formal
set of rules that prescribe how they will handle surpluses and deficits.
Surpluses often lead to member dividends or rebates. Deficits can cause
the JPA to assess the members for additional contributions.
Once you have joined a JPA, you own a piece of it, and will receive
dividends or assessment invoices accordingly. At this point, there is little that an actuary or anyone else can do about it.
However, before you join, when you are considering
a particular JPA, actuarial advice regarding future assessment risk can be extremely valuable.
Here's how we can help you make a good decision when you
are considering a particular JPA:
- In our actuarial report on your self-insurance program we can
project what it would theoretically cost you to self-insure the risk that you want to transfer to the JPA. If the
JPA is offering to take on your losses for a much lower contribution than our estimate of the self-insurance cost,
this may be a warning sign. The JPA's contribution rates, for you as well as for the existing members, may not be adequate
to pay all of the losses they need to cover. Future assessments in this case would be very likely.
- We also recommend that you have your attorney study a JPA's
bylaws and assessment policies before you join. If you are a client, we can discuss these policies with your attorney.
We can often identify critically important issues that might seem unimportant to someone who is not an actuary.