Self Insureds And The Workers Comp System - Misconceptions Part V

Self insurance may not save $$$ when compared to a regular Workers Comp policy.

Most of the time, I would agree that self insurance will save money for any employer that can qualify for self insurance. However, there are times when self insurance might cause an employer to actually pay more $ than a regular insurance policy.

A very low E-Mod/X-Mod may cause an employer to pay less premiums than self insurance payouts and expenses. If a company has an E-Mod of .8 or less, there may be no reason to convert to a self insured. This situation would have to be examined very closely. With the additional TPA expenses for a self insured, it may be beneficial to stay as a self insured.

A very bad market for reinsurance will cause a big increase in a self insurance program. This is one of the expenses that can rise very quickly. The reinsurance was provided as part of the premiums in a regular Workers Comp policy.

Your Loss Development Factor (LDF) forecasting a very high claims payout over the next ten years may indicate that self insurance is not the correct route for your company.

If your company is in an alternative insurance program such as a large deductible, carve out, or PEO - the numbers that are used to compare between these programs, self insurance, and a regular Workers Comp policy may be skewed. Trying to compare numbers in different alternative insurance programs may be risky as the numbers may have to be altered for comparison (apples to apples instead of oranges).

If your company is a large company with many locations, it may be wise to self insure in some states, and use regular Workers Comp policies in other states. When certain large companies are split up state-by-state, the companies may not be large enough to absorb many large claims.

I have added to this list a few times as there are many reasons to not self insure or at least look at the numbers more closely before self insuring. Self insurance can be a great alternative if the correct analysis is performed before becoming self insured.