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Consideration for Self-Insurance?

The Wisconsin Worker's Compensation Act, provides that all employers covered by the Act either insure their liability with worker's compensation insurance carriers authorized to do business in Wisconsin, or be exempted (self-insured) from insuring liabilities with an insurance carrier by special order of the Department of Workforce Development.

An employer exempted from insuring with a carrier assumes the responsibility for its own worker's compensation risk and payment.

What Employers Should Consider

Legal Obligations

Employees have the right to expect that their work-related injury claims will be promptly paid. This is a fundamental concept of worker's compensation and the integrity of this concept must be maintained.

Self-Insurance is, in risk management, a funding mechanism, and should not be considered as an end in itself, but as a cost-effective method of managing risk.

As a general rule, it is not feasible nor practical to self-insure when the employer's annual worker's compensation premium level is under $200,000, unless there are unusual circumstances.

An employer may be in a non-hazardous industry, but all it takes is one serious injury or death claim caused by an ordinary hazard to create a significant (and perhaps disastrous) liability. How does a small employer budget for $100,000 to $500,000 or more in claims?

Overall Liability

Frequently, an insurance carrier will not write difficult lines of insurance such as product liability or auto liability without writing WC insurance. Self-insuring worker's compensation can significantly affect the price and availability of other types of insurance for the same employer.

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

Whether claims are processed by the employer or through a third party administrator, 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

If an employer has reason to believe that there might be some advantage to self-insure, and before reaching a decision on whether or not to file an application with the Department, the employer should:

  1. Consider your working capital needs, borrowing capacity, and cash flow available for funding self-insured worker’s compensation losses as well as all other types of self-insured losses in Wisconsin, in other states and in other countries.
  2. Do a feasibility study or have an insurance consultant do one for you.
  3. 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.
  4. Look at your experience modification factor over the past years. If it’s over 1.0 you should take steps to lower it.
  5. There is a surety amount, with the minimum being $500,000, that is a condition for obtaining self-insurance privileges.
  6. 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.
  7. 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.