Self Insureds And The Workers Comp System - Misconceptions Part VIII

If our company falters, a state-sponsored fund will pick up all of our Workers Comp claims and pay them.

This may or may not true.  Almost all states have some type of Insurance Guaranty Fund that will assume the handling of the claims.  The claims are paid from a special fund that comes from fees charged by the state to all self insured companies.  

There are a few states that do not have a fund for self insureds if they go out of business.  One of the main states where this may happen is Texas.  The Texas Department of Insurance has an opt-out program that allow a company to opt-out of being covered by Workers Comp insurance.  This may be high stakes as there are some very small companies that have opted out.  This type of self insurance allows for unlimited liability for Workers Compensation claims.  A small company could not afford to be hit with very many claims before they bust their insurance budget.  Some insurance carriers have provided for Workers Comp reinsurance for opted-out employers.  

As I covered last week, a Workers Compensation liability pool may be formed to cover their members' claims.  We have seen this situation occur where the employer has to cover the claims that they have already paid premiums for if the risk pool fails to stay afloat.  If one or more of the employers in these risk pools fail, the other members will be assessed very heavily to make up the difference in premiums or assessments by the pool.    

I have covered some of the misconceptions about Self Insurance for Workers Compensation.  Self insurance can save a large amount of insurance premiums if there is a proper plan in place. Well over 95% of the clients we have aided in becoming self insured have experienced great reductions in their insurance budgets for Workers Compensation.