Oklahoma Manufacturers Association
A few days ago I had posted about the Oklahoma Manufacturers Association wanting to establish a self-insurance pool for Workers Compensation. They have done well with a health insurance pool and wanted to try to do the same with Workers Comp.
Workers Comp requires a large pool of employers to insure themselves. The Law of Large Numbers requires a huge pool of insureds. I also question that the pool should be homogeneous employers. The Law of Large Numbers is the same as the old saying about “Safety in Numbers.”
So many self insurance pools have went under that I will not list them as it would take up tens of pages. Why did these self insurance pools not survive? The Law of Large Numbers requires the risk to be spread over a very large group.
If the Oklahoma Manufacturers Association starts a self insurance or risk pool, they will be segmenting the manufacturers from all other employers in the state of Oklahoma. If all manufacturers are having problems with say, back strains and carpal tunnel, what in the group would offset these injuries?
One of the other problems is that ALL manufacturers would have to join the risk pool. Usually when a risk pool in founded, a small percentage of the possible members will join. There may be more members joining later, but usually the pool has already suffered too many losses to spread the risk, and the members see their Workers Comp premiums double the next year.
Pools will usually take in all applicants, regardless of their past claims histories and E-Mods. This initiates the process of Adverse Selection. Adverse Selection occurs when the riskiest companies sign on to a risk pool without the balance of the safer companies also coming into the risk pool.
I do hope the Oklahoma Manufacturers Association has a very successful risk pool for Workers Compensation. The odds are stacked very heavily against them.
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