Large companies in many states across the US have two choices regarding workers’ compensation benefits they provide for their workers. They can either get the workers’ compensation insurance from an outside insurance agency or do it in-house, through the process of self-insurance.
There is a lot to consider when choosing which method best suits your company besides the cost. It’s worth mentioning though that if your company meets all the prerequisites, self-insurance can help cut down costs and still protect you, your workers and your company. If you’re unsure whether this is a good idea, you can consult an experienced workers’ compensation attorney.
What does Self-Insurance Entail?
Just like traditional workers’ comp insurance, companies that self-insure are still responsible for covering the medical bills and lost wages of employees injured at work. The injury could be a result of a workplace accident or a condition that developed over time like a back injury due to bad posture.
In the traditional insurance method, you pay an insurance company monthly premiums and in turn, they handle the claims. Unlike traditional workers’ comp insurance, with self-insurance, the company creates a fund that is meant to cover workers’ compensation benefits in the event of an accident.
Self-insurance offers a number of benefits, but the one that’s most appealing to business owners is reduced costs. In self-insured companies accidents occur less frequently, as employers invest more into accident prevention by providing adequate gear for the employees, holding courses on workplace safety and more.
Are There Any Downsides to Self-Insurance?
While self-insurance has many benefits, there are also downsides to this method. There are a lot of business, fiscal and legal responsibilities you need to meet in order to meet the workers’ compensation law requirements. You will have to maintain loss records, work with service providers and file reports with the authorities. A lot of companies choose to hire a third-party administration office to handle this.
You must also meet the legal requirements in the state where your business is located. You will have to cover the company’s financial obligation by posting a letter of credit or providing a surety bond. If your company spans several states, you will have to meet the requirements in each.
But most of all, self-insurance is a serious commitment. It might be very expensive to switch from self-insurance to traditional insurance. You need to give this program time before you can see the benefits.
How to Apply?
Applying for self-insurance takes four steps. The first step is the initial review. You have to determine whether the state where your business is located allows for employers to self-insure their company. If the cost of your claims outweighs the premiums you pay, you may not be a suitable candidate.
Next, the authorities will look into your payrolls, details regarding major losses, the number of employees and other financial analyses. If you meet all the prerequisites, the program is implemented and monitored.