Jack TenneyExtra Point

by Jack Tenney, Publisher

February 2018

When my paternal grandfather courted the schoolteacher, he used his penknife to sharpen her pencils. He was a (maybe the) cashier for Traveler’s Insurance Co. He always kept his penknife razor sharp because that’s what one used to correct errors back in the days before Wite-Out. The offending digit could be shaved off the ledger page and replaced with a pen stroke.

Ah, a Valentine-connected extra point coming up?

Not really. It’s the insurance reference that’s got me grinding. You perhaps caught the headline on VTDigger in late December: “UVM hospital group moves offshore insurer to Vermont.”

It was an excellent piece but left me wondering how I might figure a way to have a taste of self-insurance benefit. As a lad, I humped an audit bag around the country in the employ of National Dairy Products Inc. That company placed all its insurance with one mutual insurance company, making it virtually self-insured.

When I worked there, it had a billion in sales, $40 million in profits after paying (or at least accruing) $40 million in taxes. Over the years, one of its subsidiaries towered over the other subs and the company became Kraftco, and then after a recent merger the name became Kraft-Heinz. I wondered if it still managed its insurance risks the same way.

Its most recent annual statement disclosed:

Insurance and Self-Insurance

We use a combination of insurance and self-insurance for a number of risks, including workers’ compensation, general liability, automobile liability, product liability, and our obligation for employee health care benefits. We estimate the liabilities associated with these risks by considering historical claims experience and other actuarial assumptions.

I self-insure all my deductibles, so why can’t I hold hands with a bunch of careful folks like myself and get paid for mitigating my risks as well as the insurance companies do? Working the scheme out on the back of an envelope, it goes something like this:

Along with 1,000 kindred spirits I pay a “capital premium” of $500 to my captive, “smartdrive inc.” Any time one of us backs into another shopper’s car at the grocery store, maybe 20 a year, our reserves get hit for $500 a ding or 10 grand. Of course, we throw those dudes out; they broke even so long as they had had only one claim. Then we invest our reserve of $490,000 in bitcoins and turn the captive into a tontine. Every time we need to cover someone’s deductible, we pay, but that person’s out. When the remaining self-insureds hits five, we split the pot.

I think that’s how self-insurance works.