Jul 06 The Risk of Self-Insuring Work Comp
The supposed dollar savings of self-insuring attracts many employers. Since the business does not pre-pay for coverage, self-insuring may seem a logical choice; at least on the surface.
However, self-insured businesses also face great risks, and some are quite significant. Self-insuring may be a case of “penny-wise and pound-foolish” if you don’t protect your business wisely. Here are just a few reasons to consider an insurance plan through a reputable company instead of going it on your own.
When choosing to self-insure, employers assume the risk of injured workers’ medical and lost-time claims. Claims are unpredictable and total claim costs can swing wildly from one year to the next, but employers are always required to have sufficient cash flow to meet their claim obligations.
The initial attraction of self-insuring is often cost savings, but facing large, unexpected expenses can seriously impact business operations. Fortunately, program options through fully-insured plans can reduce volatility.
Burdensome Legal Requirements
Employers that choose self-insured plans or plans with large deductibles often find they need to post collateral to ensure they can pay their claim obligations. Unfortunately, posting collateral has become an increasingly burdensome and expensive requirement. As well, banks are becoming less willing to extend large amounts of credit to businesses.
Self-insured businesses often need to submit a copy of their audited financial statements to their state body to determine their financial eligibility for self-insurance, too. Other available plans offer certain options to avoid both of these costly and time-consuming requirements.
Additional Excess Insurance Costs
Excess insurance, or stop-loss insurance, mitigates the costs of catastrophic claims exceeding a pre-determined level. For self-insureds, however, this is an additional expense.
Working with a qualified insurance company can eliminate this line-item expenditure. The insurance company purchases its own stop-loss insurance, relieving the insured from this responsibility. The insurance company then assumes responsibility for losses up to the limit of their reinsurance contract, and the reinsurer covers the claim costs after that.
Self-insured programs do not provide 3rd party loss control resources with a specific focus on reducing or eliminating Workers’ Compensation injuries. Loss control experts can identify unique and specialized exposures and help you control your costs. However, these services must also be contracted separately from the employer’s self-insured program.
Poor Third-Party Administrators
Most businesses that self-insure outsource duties such as claims processing to a third-party administrator. However, not all TPAs perform well and fees vary.
Unfortunately, most employers do not have access to the data they need to assess these companies properly. First-class insurance companies will share best-in-class claims metrics with you so that you can evaluate how your TPA compares to others in the industry. If your TPA doesn’t measure up, there are other options available!
No Management of Claim Severity
Workers’ Compensation claims are notoriously unpredictable, and long-tail costs associated with Workers’ Compensation claims can impact your business’s bottom line for years.
While lost-time is a major contributor to costs, medical care, prescription drugs, home care, and medical devices and supplies can just as easily eliminate any financial upside of self-insuring.
A highly-skilled insurance company can help you contain the impact of claims so you can weather the storm more easily.
Gilbert’s Risk Solutions would be happy to show you how a fully-insured plan can benefit your company. Choosing to self-insure based on initial costs does not reflect the true impact on your business. Gilbert’s has the experience and expertise to offer you much more, and at a reasonable cost.