Self Insured Workers’ Compensation Programs
Establishing a self insured workers’ compensation program.
Outline of Self Insurance
Considering Self-Insurance Understand what self-insurance is…
State considerations different for groups than individual corporations.
Financial considerations do you have the ability to assume this type of risk?
Management considerations does management have the ability to support this type of program?
Medium to large private or publicly held companies Governmental entities.
Like type (homogeneous) smaller companies who band together to share risks in the form of self-insured groups (SIGs) or
Self-insured trusts (SITs) Heterogeneous companies that are smaller
(some states do not allow)
Are your current insurance resources up to speed with self-insurance?
Do you have up to date and accurate information?
Is your organization set-up to work with this type of program?
Pros and Cons of Self Insurance
- Allows you to have more control over your total insurance costs.
- Potential cost savings with control. Improved cash flow.
- Customized program. Share in investment and U/W income (groups).
- Potentially reduce OH expenses.
- Increased awareness and Opportunity to share responsibility.
- Increased Administrative Responsibilities. Loss unpredictability.
- May affect other coverage pricing. It is a long-term commitment.
- Financial issues may arise affecting disclosure, taxes and security (bonds or other).
- Potential employee issues.
Getting Started Review your costs (premiums, losses, volatility).
Check applicable state regulations to ensure compliance.
Prepare a feasibility report showing impact of costs and state requirements.
A historical perspective going back five years should be prepared.
An actuarial analysis may be desired depending on the size of your costs and impact of regulatory changes that may have recently occurred.
Evaluate the impact of the study with your strategic objectives.
Customer or vendor objectives.
Review tactical integration with these objectives.
Self administered vs. third party administration (TPA).
Complete an employee by location census including detail of construction, number of shifts and employee by shift.
As part of feasibility, you may want a catastrophic map completed showing the potential loss based on concentrations of employees.
Review other risk financing plans that may be available to you to ensure you are making an informed decision.
Other plans may include:
- Deductible Programs.
- Retrospective Programs.
- Multi-line Programs.
- Design your Program.
- Underwriting guidelines (for groups or if involved with M&A)
- Safety Guidelines (typical vs. proactive).
- Financial guidelines.
- Sponsoring Association (groups).
- Claim guidelines and integration with HR or other disability covers.
- Audit, accounting, actuarial, investment and regulatory.
- Design an implementation plan.
- Review timing.
- Interview vendors that are knowledgeable in self-insurance.
- Contact state associations to check references and seek input.
- Contact regulators and discuss applications and financial considerations including joint and several contracts.
- Review internal assignments for personnel.
- Contact insurance carriers.
- If state sponsored association, review agreements and responsibilities.
- Key components to consider;
- Self-administration – allows you to administer the program internally.
- Third party administration – implies that you will hire a third party to administer various functions of your program.
- Financial administration – actuarial, accounting, investment advisors and regulatory personnel.
- Data Collection- You must have a system set up to collect the needed management data.
- Brokerage – if you are a group, are you marketing your program through brokers?
What costs are you willing to incur?
Insurance – Excess insurance, both specific and aggregate, should be considered by new self insureds.
Only a few excess carriers currently offer both.
If you have a long standing and predictable program, you may explore only buying specific coverage (some states require aggregate) as you have identified your predictability for the frequency of claims but still want catastrophic claims covered.
Insurance- In addition to excess coverage, if you are a group, you may have to purchase other lines of coverage for equipment, liability, fidelity and E&O/D&O.
With a group, you have a board of trustees that has been selected/elected. As such, they have oversight responsibility for the group’s results. In this case, the group should purchase Trustees E&O and D&O coverage. This protects the board members in the event of many disputes.
Contracts – especially with respect to groups. When you have a group, the members who join are required to sign an agreement that makes them jointly and severally liable for the performance of the group.
This agreement allows the group and the state to make assessments to members of record in the event the group cannot pay its claims.
Although rare, several recent cases in TN and KY have brought this issue to the forefront of the self-insurance marketplace.
Other Key Components
Critical positions – find experienced staff members or vendors for the appropriate positions.
These include underwriting, loss prevention, auditing services, internal accounting, claims management, actuarial, outside accounting firms, marketing and executive oversight.
Expenses – while there is not an absolute rule, expenses for a self-insured program should be less than what they might be in the guaranteed cost insurance marketplace.
Expense ratios in some states are regulated and must be adhered to. Other states may penalize your group for exceeding certain expense ratios. Generally, if your expense ratio is 35% or less, your program is on target.
Focus on losses!
Losses are typically your largest component of cost and yet little is done to:
Make sure you focus on preventing and, when one occurs, efficiently and fairly managing the claim.
Good selection is necessary when trying to reduce potential for claims-history does repeat itself.
Excellent loss prevention attitude and programs must be maintained.
Selection plays an important role specifically with management involvement. Choose a claims administrator that is experienced in your business.
New ideas and implementation must be constant.
Interaction with all departments is critical-
underwriting, claims, management and loss prevention personnel must work together.
Review performance of claims administrator with respect to best practices for the industry.(ie. 24 hour contact, file reviews, communication skills, cost containment utilization).
Interaction with employer, underwriting, loss prevention and key management is essential.
Get employees and supervisors involved.
Seek return-to-work when the injured employee is ready.
Do not let claims linger.
Self-Insurance data considerations
Data Collection Elements for Self-Insured’s
Data collection is the key to starting and maintaining a successful self-insured program.
Key data elements that you should track besides individual claim data include:
1. Historical payroll by class and by year.
2. Historical rates by class by year.
3 .Historical total incurred losses by year (this includes the entire value of a claim whether paid or not).
4. Historical total paid losses by year.
5 .Historical claim counts by year indicating whether claims are open, closed or CNP (closed and no payment).
6. Employee concentration by location or member including zip code, construction of building, by shift and/or job site.
7. Prepare a separate listing of all losses with a total incurred value greater than $50,000.
Track the following: Date of Loss (DOL); name of claimant; accident description; amount paid; amount reserved; and, indicate whether the claim is open or closed.
8. Historical retentions for specific excess of loss and aggregate excess of loss.
9. Be aware of any unusual changes in exposures that may occur during policy years to identify other trends.
Self-insurance is usually the most economical way to take control of your insurance costs in the long-term. Self-insurance requires diligence among the stakeholders.
Cost Containment Solutions will assist in finding an initial resources that can help streamline your process. Utilizing Cost Containment Solutions to help you find qualified resources or to connect you with other peer organizations that might assist in your research and development.
Review all options available to you to ensure that you have considered other options.
Develop your core fundamentals and stick to them.
Create your plan, hire the most qualified individuals and/or service providers.
Keep track of data.
We will work with your current Third Party Administrator or Insurance Company to enhance you Risk Management Program.