For those companies that find themselves in what seems to be a losing battle with Worker's Compensation Costs, there is an alternative. Almost every state allows qualified companies to self-insure their worker's compensation insurance. Since most worker's compensation insurance companies report about 75% of premium dollars are going to claims expense, the balance is going to agent commissions, administrative expenses, marketing, and profits.
In some states, the smaller companies that do not qualify to self-insure also have an alternative. Smaller companies can join a pool of other small companies which is generally done through a trade association, and combine their assets which will allow them to self-insure.
How it Works
Qualified companies who elect to self-insure can manage their claims in-house or use a third party administrator. The administrator will for a fee, handle the required paperwork and benefit payments to your claimants. There is also "excess insurance" available (similar to reinsurance) that can protect the organization if claims surpass an amount that is determined by the self-insured company. Most companies that elect to self-insure feel they can do a more efficient job of administering the program and understand their risks better than a standard insurer. These companies focus on the risk of their employees rather than the industry as a whole.
Industries that Benefit The Most
High-risk industries tend to be the better candidate for self-insuring. Certainly low-risk industries like a professional organization or sales company are already paying very low rates in the standard insurance marketplace so their ROI for self-insuring would be little to none. Companies operating in manufacturing and construction realize substantial savings since when they self-insure, they avoid the premium swings in the standard market, and can manage their expenses more efficiently than a standard insurer. Companies that implement comprehensive safety programs and apply resources to mitigate risks will experience significant savings by reducing claims, operating more efficiently, and eliminating profit and expenses.
Is it Right For You?
These are several considerations that need to be made before electing to self-insure:
· Is it allowed in your jurisdiction? The first thing to verify is whether your state will allow you to self-insure, and if so, what are the qualifications.
· Are there resources available? There will certainly be an investment that must be made by the company, and this could be considerable. If the organization is seriously being punished with workers compensation costs, it is certainly a good time to decide if these resources should be directed to a self-insured plan.
· Claims History - If your safety protocols have been successful in mitigating the risks associated with your industry and yet you are paying the standard rate for your classification, it certainly may be time to consider self-insuring.
· Qualifications - The state in which you operate will have the qualifications needed to operate a self-insured worker's compensation plan. Visit your state's worker's compensation website to review and make an informed decision as to whether self-insuring is the better move for your company.
Worker's Compensation can be a convoluted subject that can become more cumbersome depending on your jurisdiction. Take the step to contact a worker's compensation professional at Skyline Risk Management, (718) 267-6600 to get the information you need to make an informed decision about saving money on your Worker's Compensation premium.