FAQ's
Self Insurance
What is Self-Insurance?
When a company self-insures, it takes responsibility for paying its own claims, rather than purchasing workers' compensation coverage from an insurance company.
How does Self-Insurance work?
Companies that self-insure establish a claims fund with dollars they would otherwise pay for insurance premiums. They limit the amount of financial risk they have by purchasing excess insurance.
What kind of savings can I expect from self-insurance?
Savings vary from company to company.
Who is a good candidate for self-insurance?
Self-insurance can provide benefits to:
· Employers from all industries
· Employers that pay $500,000 to $750,000 annually in workers' compensation premium in a single state
· Employers who experience better than average losses year after year
· Employers who have historically experienced worse than average losses but who are newly committed to controlling their workers' compensation costs
Is it difficult to qualify as a self-insured?
No, it's not difficult, but it can be time consuming. It is recommended that you start the process four months prior to your expected start date. Self-insurance is considered a privilege granted by an individual state only after careful review of your company's financials.
Why do companies self-insure?
Companies choose to self-insure for basic fundamental reasons:
- Lower their overall workers' compensation costs
- Improved cash flow
What they find is that in addition to these basic financial benefits they also enjoy improved employee morale and greater productivity.
How can I determine whether self-insurance makes sense for my company?
Savings vary from company to company.
How does my company make the transition to self-insurance?
1. Contact your agent/broker
2. Analyze loss history
3. Review state regulations and complete state application
4. Determine and satisfy "Security Requirement"
5. Select a TPA for claims administration and safety services
6. Select an excess workers' compensation carrier
7. Assign internal management responsibilities
Coverage
What is excess coverage?
Companies that self-insure limit the amount of financial risk they have by purchasing excess insurance. This coverage places a cap on how much a company pays for claims resulting from a single incident or during a specific time period (e.g. a year).
What is specific excess coverage?
Specific excess coverage is designed to protect a company from "unexpected" high-cost claims due to a single, work related incident regardless of how many employees are injured in the event.
What is aggregate excess coverage?
Aggregate excess coverage places a limit on the amount an employer pays for all claims incurred during a given time period. So if a company has a year in which it experiences more than the anticipated level of claims activity, it is protected.
What does "stop loss" mean?
Stop loss is another term for aggregate excess insurance.
What is a Self-Insured Retention (SIR)?
The SIR is an amount negotiated by the employer and the excess insurance company. (The SIR is also sometimes referred to as the "specific retention.") It acts as a deductible and is usually stated in increments of $50,000, i.e. $200,000, $250,000, $300,000, $350,000, etc.
What kind of savings can I expect from self-insurance?
Savings vary from company to company.
Claims
Can one large claim wipe out my loss fund?
No, companies that self-insure limit the amount of financial risk they have by purchasing excess insurance.
What if we have a whole year (or more) of higher-than-expected claims?
Companies that self-insure limit the amount of financial risk they have by purchasing excess insurance. "Aggregate" excess coverage places a limit on the amount an employer pays for all claims incurred during a given time period. So if a company has a year in which it experiences more than the anticipated level of claims activity, it is protected.
How do we know how much to set aside for claims?
Your agent/broker will analyze your loss history and help you establish an appropriate self-insured retention (SIR).
What is a TPA?
Third Party Administrator, also known as a Service Company, provides:
- claims administration
- loss prevention services
- data processing
CLICK HERE to access information specific to your state.
IF YOU HAVE ADDITIONAL QUESTIONS, PLEASE FEEL FREE TO CONTACT AN MECC REPRESENTATIVE IN YOUR STATE OR CALL US TOLL FREE AT: 877/WRK-COMP (877/975-2667)