What exactly is Self-Insurance? Who should Self-Insure? Why do it? Midwest Employers Casualty has prepared an easy to follow guide for understanding what Self-Insurance is and what it can do for you.
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.
Companies that self-insure establish a claims fund with dollars they would otherwise pay for insurance premiums.
When you self-insure, you are paying the bills. You have more control over the workers’ compensation process. This additional control translates into significant savings.
Ask yourself this question: Who has the ability to exercise the most effective control of your workers’ compensation process and the related costs... you or an insurance company?
Obviously, you do.
Employers that purchase guaranteed cost workers’ compensation coverage (also known as first dollar programs or primary workers’ compensation) have a tendency to abdicate control to the insurance company. The insurance company makes all the decisions as to which injured workers get paid, how much, how long, which doctors are used, attorneys, etc. Insurance companies are basically “claim factories” with a one-size-fits-all philosophy.
Insurance companies also provide safety or loss prevention programs to their clients. The results are similar; it’s a one-size-fits-all approach for these types of programs.
Since insurance companies pass any increased costs back to their customers by raising rates or through the experience modification, they have less incentive to drive costs down than you do.
Who Is A Candidate?
Virtually employers from all industries are candidates for self-insurance: healthcare, government, education, transportation, retail, financial, manufacturing, etc., all benefit from self-insurance.
Usually when an employer is paying $500,000 - $750,000 annually in workers’ compensation premium in a single state, self-insurance becomes a realistic option for them.
Employers that have their premium spread across several states must reach the $500,000 - $750,000 threshold in each state for self-insurance to be an option.
Note: If your company is too small to self-insure individually, you may wish to consider group self-insurance.
- 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.
An ever increasing competitive environment, greater demands on productivity and escalating costs continue to make workers’ compensation a high-priority issue for businesses.
Many employers are turning to self-insurance as a cost-effective alternative to rising insurance prices - and as a way to gain greater control over their workers’ compensation claims experience.What is Total Cost of Risk?
Companies choose to self-insure to:
1. Lower their overall workers’ compensation costs.
2. Improve their cash flow.
Employers find that in addition to these basic financial benefits, they also enjoy improved employee morale and greater productivity as a result of their decision to self-insure.