05/13/2014
Self-Insurance in a Monopolistic State Fund
There are several potential advantages to an employer choosing self-insurance as an option, including:
- direct input into who handles claims and how they are administered
- ability to design and tailor safety/loss control programs, return-to-work programs and other post-loss cost containment strategies
- ability to design program structure
- lower overall cost of workers’ compensation program
- cash flow advantages
There are, of course, associated costs and risks which must be considered before choosing self-insurance as an option. These include:
- potential for unusual and adverse costs in any given policy period
- requirement to post collateral with regulatory authorities
- devotion of management time and energy to oversee components of the self-insurance plan
- legacy costs if the program is closed
- more limited choice in excess insurers compared to primary insurers
Despite these costs, self-insurance often remains a viable and typically cost-effective alternative to State Funds or, for that matter, private carriers.
If of interest, a feasibility study will be required to make an educated and factual analysis of whether self-insurance is a viable option in any individual case. If it’s determined to be an option – and the insured chooses to pursue – an application to the state, along with additional documentation including loss history, financial statements, and a demonstrated ability to administer a self-insurance program, is required for approval to self-insure.
Once the insured has received permission to self-insure, contracts with various service providers, third-party administrators (TPA), safety/loss control consultants, and excess carriers need to be executed. In addition, the state will require letters of credit to secure the retained portion of the risk, and a claims payment fund needs to be established so the TPA can pay claims.
Requirements for receiving and maintaining qualified self-insured status vary by state and can be challenging to comply with for employers with operations in multiple states, although it is frequently done. However, for single-state employers, self-insurance is certainly an option that should be evaluated. And, for brokers who serve clients whose only other option is the State Fund, self-insurance is an opportunity to provide additional value and added services for your insured.
AmWINS has resources available to help you evaluate the viability of a self-insurance solution for your insureds.
To learn more about how AmWINS can help you place coverage for your clients, reach out to your local AmWINS broker. If you do not have a contact at AmWINS, please click here.
Legal Disclaimer. Views expressed here do not constitute legal advice. The information contained herein is for general guidance of matter only and not for the purpose of providing legal advice. Discussion of insurance policy language is descriptive only. Every policy has different policy language. Coverage afforded under any insurance policy issued is subject to individual policy terms and conditions. Please refer to your policy for the actual language.
(c) 2017 AmWINS Group, Inc.
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