Consideration for Self-Insurance?

All employers covered by the Worker's Compensation Act either insure their business with worker's compensation insurance carriers, or be exempted (self-insured) from insuring their business with an insurance carrier by applying through the Department of Workforce Development.

An employer approved for Self-Insurance owns the responsibility for their employee's potential risk to on-the-job injuries and payment for the injuries.

What Employers Should Consider

Legal Obligations

Work-related injury claims should be promptly paid. The integrity of this concept must be maintained.

Self-Insurance is a funding mechanism and should not be considered as a cost-effective method of managing risk.

It is not practical to self-insure when the employer's annual worker's compensation premium level is under $200,000, unless there are unusual circumstances.

All it takes is one serious injury or death claim caused by an ordinary hazard to create a significant and disastrous liability.

Overall Liability

Insurance carriers may not write lines of insurance such as product liability or auto liability without writing WC insurance. Self-insuring worker's compensation can affect the price and availability of other types of insurance for the same employer. Bundling all insurance products through one insurance agent may be more cost effective for the business compared to the cost of self-insurance.

Loss Control

A prudent self-insurer must continuously review its safety and loss control plan to ensure safe and healthy working practices are developed and maintained for all jobs and all work areas.

A safety coordinator at each location should be considered. Duties may include:

• safety training.
• monitoring safety and providing management reports.
• conducting hazard reviews of new or modified equipment, processes, materials, tools, and devices.
• coordinating safety committee meetings and record keeping and reporting as required by OSHA.

Claims Management

The self-insured employer is responsible for claims payment. Some of the duties which should be considered include:

• claims reporting,
• claims investigation,
• representation at hearings,
• medical management of large cases,
• return to work programs,
• independent medical examinations,
• statistical record gathering and maintenance,
• and claims liaison with excess carriers when a claim exceeds (or nears) retention.

Fiscal Obligations

Before reaching a decision on whether to file a Self-Insurance application with the department, the employer should:

1. Do a feasibility study or have an insurance consultant do one for you.
2. Determine the kind(s) of specific and/or aggregate excess insurance and dollar amount of retention and upper limit you will need to protect your company, partnership, or proprietorship against catastrophic loss. Find out if it is available and how much it will cost. All self-insured employers are required to have specific excess with amount established by the Department.
3. Look at your experience modification factor over the past years. If it’s over 1.0 you should take steps to lower it.
4. There is a surety amount, with the minimum being $500,000, that is a condition for obtaining self-insurance privileges.
5. All self-insured employers share in the potential liability for payment of worker's compensation claims in the event a current and/or former self-insured employer becomes insolvent and/or is unable to pay their worker's compensation claims that occurred while they were self-insured.
6. Estimate the self-insured medical and indemnity cost you expect to incur and pay each year during the next three years. Review the total amount payable each year and the total amount reserved at the end of each year for benefits payable in the future. The Self-insurance Worksheet may be helpful to estimate any costs under an insured program versus a self-insured program to aid in determining if self-insurance is feasible for your organization.