Is Self-Insuring Workers Compensation is Right for an Organization?
For many companies a self-insurance Workers Compensation program makes sense with clear-cut benefits to doing so, including great control over expenses and ultimately cost savings. But before deciding on whether self-insurance is right for a company, several considerations must take place.
First, management needs to take a close look at its appetite for risk. For example, what is the company’s attitude to assuming risk? As self-insurance assumes a portion of risk there must be a commitment to bear a certain level of uncertainty over claims costs. The company also has to be clear that it is committed to this type of program for the long haul. Moreover, management must commit to having a proactive role in risk mitigation and loss prevention as the money that will be spent on claims will have direct effect on the organization’s bottom line.
In addition, a company needs to evaluate what services it can provide internally and what needs to be outsourced to manage a self-insurance program effectively. With traditional Workers Comp, insurers typically provide a number of services in order to manage the costs associated with the insurance program. In order to obtain cost savings in Workers Compensation self-insurance programs, there needs to be lower medical and indemnity payments to the employee and decreased administration expenses. This involves a wide range of services that must be undertaken, including having the medical knowledge to evaluate and process claims and negotiate services with health provides; legal resources to assess the merits and potential cost of litigated claims; actuarial assistance to forecast future loss projections for the organization; and safety and loss control programs.
With a self-insurance program, an employer can choose to hire the human resources to undertake these services, purchase the services from outside sources or choose a combination of both. For example, third-party administrators (TPAs) will contract to provide most of the services insurance companies traditionally perform. They are paid a fee to perform in specific administrative and professional capacities.
Also important in the self-insurance feasibility process is for the organization to review and assess its operations and exposures. The more states a company operates in, the greater the administrative costs associated with the self-insurance program since the organization must file its plan for approval in each state where it wants to operate as a self-insurer. Additionally, state requirements for self-insurance vary and should be carefully reviewed so that the administrative burden for self-insurance does not become overwhelming or cost prohibitive.
At Caitlin Morgan, we can assist your insureds with determining whether a self-insurance Workers Compensation program is right for them. We can help them conduct a feasibility study that includes data collection of all past losses; actuarial analysis; financial analysis that takes into account all the associated costs of the program including loss costs, claims handling costs, safety and loss control charges, state fees and assessments, specific and aggregate expenses, consulting fees and collateralization costs; operational considerations – what will be handled internally versus a third-party administration; state requirements; and more. Give us a call at 877.226.1027 to discuss our services and the programs we offer for Workers Compensation.
Sources: Self Insurance Market, IRMI