The Importance of Tracking Your SIR Payments


The Importance of Tracking Your SIR Payments

Staying on top of your organization’s financial health is one of the most important things you can do to ensure success. The number one way to stay up to date with your financials is by tracking every payment made, and every dollar received. The accounts payable and receivable departments are responsible for a lot of transactions, but when those transactions become too tricky to monitor and calculate, that is when a change in financial operating procedures within your organization is required.  

Are you losing money? 

Tracking self-insured retention (SIR) payments is essential to knowing your organization’s complete financial well-being. Until your insurance company begins to pay for occurrence claims, you are the insurer and are responsible for paying all claims. This process is more in-depth than just adding a journal entry to your Accounts Payable ledger. Not keeping track of your financials and your SIR payments will add to your financial leakage, causing you to lose money year over year.  

Why Track Your SIR payments? 

Every SIR policy will have a coverage limit that needs to be met by the policyholder before the insurance company begins to make payments. Your organization needs to track those payments, so you can quickly trigger the insurance policy to begin to pay for any future claims. The only way you can know if you have met the coverage limit on your SIR is by tracking all payments and knowing your real-time totals of all claims paid. 

In addition, knowing how close you are to your SIR limit could be a contractual requirement within your insurance policy. Some policies require the organization to inform the insurance company when a certain percentage of the SIR limit has been met. If this does not happen, your insurance company may inform your organization that you have violated the contract, and they will not be making any future payments for claims, even if the limit has been met. 

What should be tracked? 

Let’s reiterate the importance of tracking your payments with an example. Imagine a developer has built 25 homes within a subdivision and after six months, there are issues with wiring in two houses, plumbing in eight houses and nonfunctioning central vacuum systems in all 25 homes. The developer will need to hire contractors to fix these occurrence claims and track which occurrences are covered under the warranty policy. Depending on how the contractors create their invoices, the builder may have separate invoices for every issue repaired, or one invoice listing repairs on multiple properties.   

Either way, the developer needs to track those invoices and track which ones were paid in full and which ones were partial payments. All of these payments, no matter how small, brings your organization closer to meeting the total of the SIR. 

At first glance, this may not seem like a very large number of invoices to track, but the warranty claims in this example are for a snapshot in time. In a real-life situation, there would be many more occurrences throughout the year or even over several years. Tracking this many invoices becomes a monumental task when adding other essential information such as the names of the contractors, the dates, check numbers used in payments and any other notes regarding the work that was completed. 

How to Track Your SIR Payments?

The most optimal system for tracking is not accounting programs or spreadsheets. They are not equipped to keep track of these occurrence claims and detailed information this way. Using this type of tracking system opens the door to mistakes and human error and it is almost impossible to get real-time totals when needed. In addition, invoices should not be stored in boxes or filed in a cabinet. Missing invoices or information that must be found through the labor-intensive process of searching through boxes of stored invoices is not an ideal way to keep your financials up to date. If this is how you currently track your SIR payments, you may have already met your SIR limit without your knowledge, and you may be continuing to pay these claims out of your own pocket, causing leakage. The best system to use for tracking is a software solution that incorporates an API network, allowing for simpler data transferring as it saves you time, is more accurate and is easy to use.  

If you are not tracking your occurrence payments against your SIR limits, you have a good chance of never meeting your limit and always in the cycle of being your own insurance company. Even if your limit is in the millions, payments can add up quickly. The financial health of your organization is one that must include the tracking of SIR payments.