A self-insured employer assumes the financial risk for providing Workers’ Compensation benefits to its employees instead of transferring the risk to an insurance company. Under a self-insured plan, claims are typically paid by a Third Party Administrator (TPA) of the employers’ choosing and the employer pays for the claims within a retention amount. Claims above the retention amount are covered by an excess insurance policy which reimburses the employer as the claim is paid. Excess insurance is required in most states and can protect the employer from claims that can run into millions of dollars and span many years.
Due to the long tail nature of Workers’ Compensation claims, am employer must be approved by each state as a qualified self-insurer before adopting a self-insured plan. Prospective self-insurers must meet certain minimum premium thresholds and solvency standards and may need to provide an actuarial study to support the application.
Self-insurance works well for larger employers with a concentration of employees in one place such as hospitals, manufacturers or governmental entities. The self-insurer has more control over claims and associated costs and is able to ensure their injured workers are receiving timely and proper care. Claims are paid as they are incurred, which maximizes cash flow when compared to an insurance policy that requires payment of premium up front.
A large deductible policy is similar to self-insurance in that the employer bears the financial responsibility for a portion of the loss. The significant difference is that the insurance company atypically determines who pays the claims. Large deductible policies are often appealing to employers who want the benefits of self-insurance but are unable or unwilling to qualify as a self insurer. An example might be a multi-state retail or service operation that pays a large workers’ compensation premium but does not have enough premium in any one state to qualify as a self insurer.
Though many carriers offer large deductible insurance, our approach is to work with carriers that allow the employer to choose the claims management services provider. This is an important consideration for the employer who assumes the financial responsibility for a large portion of the claims. Without an independent claims administrator the employer has little say in how claims are adjudicated.
A “captive” is an insurance company created to insure the risks of its owners. While there are numerous forms of captives, they all basically are forms of self-insurance with an employer or group of employers retaining risk. All kinds of coverage can be written in a captive provided there is a sufficient volume to support the business written and the owners can provide the appropriate level of capital. Tennessee for example allows self-insured employers to utilize a captive to write workers’ compensation insurance. BrentRe has been very active in promoting Tennessee as a captive domicile and can provide guidance for employers and groups considering a captive insurance alternative. BrentRe can also provide reinsurance to protect the captive owners.