How the Financial Undertaking is determined

For a self-insurer with three years or more experience as a self-insurer

The methodology for a self-insurer with three years or more experience as a self-insurer shall be based on a minimum of 150% of the central estimate of outstanding claim liabilities, as determined by a certified actuary, in accordance with the Institute of Actuaries’ professional standards.

A minimum quantum guarantee of $1 million will apply for all guarantees for a self-insurer with three years or more experience as a self-insurer.

For a self-insurer with less than three years of experience as a self-insurer

The methodology is different for a self-insurer in its initial permit period compared to a self-insurer renewing its permit.

This recognises that, because a new self-insurer has no history of liability, its claims provision can be expected to increase substantially over the first three years.

A Financial Undertaking from an approved financial institution will incorporate an allowance for at least one very significant claim. This allowance will be at least $500,000, or any greater amount that equates to the self-insurer’s excess on its excess of loss policy. This minimum risk level is considered necessary due to the small size of many Tasmanian self-insurers.

Step 1: Calculate a notional premium

The Board will calculate a ‘notional premium’ using the same methodology used to calculate notional premiums (PDF, 124.5 KB) to the Board:

• Year 1: notional premium x 100%
• Year 2: notional premium x 140%
• Year 3: notional premium x 180%

Step 2: Add in a margin

The margin is equal to the greater of:

• 30% of the adjusted notional premium (as calculated in step 1)
• $500,000 minimum excess.
• the amount of the excess to be paid (per event retention)

Self-insurer permit conditions currently provide for an excess of up to $1 million.

The three-year scaling effect accounts for the projected proportional liability for claims over that period.

Example