Self Insurance Workers Compensation

Workers’ compensation coverage pays benefits to workers injured on the job, including medical care, lost wages and permanent disability. It also provides death benefits to dependents of employees killed from a work accident. Workers’ compensation regulations are different in every state, as individual statutes and court decisions have shaped the way they handle claims and pay benefits.

Most employers comply with these laws by purchasing workers' compensation insurance from a traditional insurance company.  However, with workers' compensation costs rising, many large employers are choosing to self-insure.  Employers that self-insure must comply with these same workers' compensation laws, the difference being they've taken the responsibility for paying their own claims.

There are several reasons employers choose to become self-insured for workers' compensation.  Primary among those is to reduce cost and put money back in the company’s pocket.


Reduced costs can come from several areas, including:

  1. Lower fixed costs
  2. Improved claims handling
  3. Reduced losses through better loss control
  4. Improved cash flow and potential to recoup underwriting profit

Potential self-insureds usually have three concerns:

  1. This sounds like a lot of work.  What do we know about handling workers' compensation claims?
  2. How do we protect the company from a catastrophic claim?
  3. How do I qualify?

Fortunately, there are good answers to these questions.


Claim Handling:
Most self-insured companies do not handle their own claims.  Third Party Administrators (TPA’s) specialize in providing claims administration and loss control services for self-insureds. They contract with employers to provide these services for a fee.  Special care should be given to make sure the TPA’s service offering lines up with the employer’s approach to risk management and claim handling.


Protecting the Company from Catastrophic Claims:
Although employers take on the financial risk when self-insuring, they are able to limit their risk through the purchase of excess insurance policies.  Sometimes referred to as stop-loss, or reinsurance, the excess policy is one of the most crucial elements of self-insured workers compensation. 

There are two forms of stop loss coverage: Per Occurrence and Aggregate.

Per Occurrence: 

This coverage protects against large, catastrophic claims incurred in a single accident.  Per Occurrence reimburses the employer when losses for a claim exceed a specific deductible.  Deductibles typically range from as low as $50,000 to as high as $2,000,000 depending on several factors including company size and risk tolerance.  

Aggregate:

This coverage protects against higher than anticipated claim activity for the company as a whole.  Once the total paid claims exceed the threshold for the plan, the carrier reimburses the employer for the overage.


Requirements for becoming Self Insured:
A small number of states do not permit employers to operate self-insured plans, forcing them to buy traditional insurance.

In all other states, companies must apply and be approved by the appropriate state regulatory agency.  To be approved employers need to meet certain financial requirements, provide actuarial reports and demonstrate the ability to operate a successful safety program. 

Specific requirements vary by state.  Links to state specific requirements are provided below. 

http://www.dir.ca.gov/osip/SelfInsuredEmployers.htm
http://www.tdi.texas.gov/wc/si/
https://www.bwc.ohio.gov/employer/programs/siinfo/obtainingsiintroduction.asp
http://www.iwcc.il.gov/selfinsurance.htm
http://www.wcb.ny.gov/content/main/SelfInsureds/Self_Ins_Employers.jsp
http://www.portal.state.pa.us/portal/server.pt/community/workers'_compensation_insurance/10441