We are in a risk pool with other insureds, but that still makes us one of the group’s self insureds.
This is one of the scary assumptions that exists in the Workers Comp market today. Please note that I am not talking about the Assigned Risk Pool. We receive many calls and emails from employers that have been assessed huge premium bills from a risk pool that they were in, be it a privately funded or a government-based Workers Comp risk pool.
These are not as popular as they once were in the 1990’s, but risk pools are starting to make a comeback of sorts. This usually happens in a hard market situation. Who can blame companies for trying to stay afloat by searching for every insurance option that is available?
Homogeneous risk pools originate when a private insurer starts a risk pool (with the State Department of Insurance approval). Companies that are similar in nature (i.e. trucking companies) are pooled together to share in the risk of Workers Compensation accidents. Sometimes, state governments will create a risk pool to usually function as an insurer or last resort. The risk pool will produce each member’s E-mod and will assess each of members in the pool. This sounds like a good arrangement.
There are many unexpected problems or concerns with Workers Comp risk pools:
- There are not enough employers to satisfy the Law of Large numbers – the risk cannot be spread evenly.
- Some safer members may be subsidizing the unsafe members of the risk pool
- If the risk pool does not spread the risk evenly, there may be huge assessments for the risk pool to survive (KIMI in Kentucky is a great example). Sometimes these assessments are made after the pool has failed.
- There is no control of how the claims are handled.
- If the risk pool fails, the employer may be directly responsible for the future handling of the Workers Comp claims.
- If the risk pool incorrectly reports your claims to the State Rating Bureau or NCCI, your E-Mod may be inaccurate for many years.
- The Departments of Insurance may not have as much authority over your policy or claims. If you have a complaint or concern, they may not be able to assist you.
The final thing I wanted to cover is that you are not self insured when you are in a risk pool. Your company’s Workers Comp program is much more like an alternative type of program. Risk pools are a great way to insure your Workers Comp risks, but self insureds please check them out very closely before joining as a member.
Article provided by James J Moore, AIC, MBA, ChFC, ARM. All articles are original content. Check out the full website at www.cutcompcosts.com.