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Law of Large Numbers – Article on Self Insured Group Failure

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Workers Comp Law of Large Numbers Causes SIG Failure 

This is a great article on Workers Comp Law of Large Numbers.  The law of large numbers means that risk has to be spread amongst a large number of policies, claims, payroll, etc.  When the spread becomes too small a small concentration of adverse risk will cause a drain on funds that cannot be recovered. 

Golden Gavel Law of Large Numbers Vector Graphic
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Check back tomorrow to see why this type of Workers Comp arrangement rarely survives long term.

By Jim Stafford
NewsOK

Broad acceptance of a health insurance plan offered by the Central Oklahoma Manufacturers Association has prompted the group to explore a workers’ compensation package for the state’s manufacturers, officials said Tuesday.

The manufacturing group has hired Arthur J. Gallagher Risk Management Services of Tulsa to develop a new workers’ compensation insurance package for small and medium manufacturers, said Bob Carter, an extension agent with the Oklahoma Manufacturing Alliance. What are the savings? The proposed workers’ compensation insurance could save manufacturers 10 to 20 percent on premiums, Carter said.

Workers’ compensation insurance is a major expense to manufacturers, said Jory Gromer, president of the Central Oklahoma Manufacturers Association. Gromer is general manager of Green Bay packaging in Chickasha. “This is why we are looking at the feasibility of a plan on an association basis,” Gromer said. “In order to accomplish this, we are asking member and nonmember manufacturers across the state to provide us with certain workers’ compensation data. All data will be held in strict confidence.” The plan would be offered to manufacturers statewide, said Carter, who works closely with the association through his role with the not-for-profit Oklahoma Manufacturing Alliance.

Hand Draw of Health Insurance Law of Large Numbers On Board
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The group’s health insurance product, which is offered in partnership with BCBS of OK, has enrolled more than 200 manufacturers throughout the state, Carter said. That covers about 12,000 employees and their family members. “Blue Cross told us the increase for COMA participants in the 2008 health plan would be zero,” Carter said. “One of the nicest things that could ever happen to this group is the fact that there was no premium increase in 2008 for any company.”

The Central Oklahoma Manufacturers’ Association claims 339 member companies from across the state. Member companies pay an annual membership fee of $50.

Oklahoma’s workers’ compensation rates are higher than neighboring states of Texas, Kansas and Arkansas, Gromer said. “Our intent with this plan is two-fold,” Gromer said. “First, we want to help local manufacturers save a substantial amount on workers’ compensation premiums. Second, we hope the state would consider using this plan, along with our health care and long-term care plans to attract out-of-state manufacturers to Oklahoma.”

Up Next – Why Employer Group Associations Insurance Plans Are Rarely Successful

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James Moore

Raleigh, NC, United States

About The Author...

James founded a Workers’ Compensation consulting firm, J&L Risk Mgmt Consultants, Inc. in 1996. J&L’s mission is to reduce our clients’ Workers Compensation premiums by using time-tested techniques. J&L’s claims, premium, reserve and Experience Mod reviews have saved employers over $9.8 million in earned premiums over the last three years. J&L has saved numerous companies from bankruptcy proceedings as a result of insurance overpayments.

James has over 27 years of experience in insurance claims, audit, and underwriting, specializing in Workers’ Compensation. He has supervised, and managed the administration of Workers’ Compensation claims, and underwriting in over 45 states. His professional experience includes being the Director of Risk Management for the North Carolina School Boards Association. He created a very successful Workers’ Compensation Injury Rehabilitation Unit for school personnel.

James’s educational background, which centered on computer technology, culminated in earning a Masters of Business Administration (MBA); an Associate in Claims designation (AIC); and an Associate in Risk Management designation (ARM). He is a Chartered Financial Consultant (ChFC) and a licensed financial advisor. The NC Department of Insurance has certified him as an insurance instructor. He also possesses a Bachelors’ Degree in Actuarial Science.

LexisNexis has twice recognized his blog as one of the Top 25 Blogs on Workers’ Compensation. J&L has been listed in AM Best’s Preferred Providers Directory for Insurance Experts – Workers Compensation for over eight years. He recently won the prestigious Baucom Shine Lifetime Achievement Award for his volunteer contributions to the area of risk management and safety. James was recently named as an instructor for the prestigious Insurance Academy.

James is on the Board of Directors and Treasurer of the North Carolina Mid-State Safety Council. He has published two manuals on Workers’ Compensation and three different claims processing manuals. He has also written and has been quoted in numerous articles on reducing Workers’ Compensation costs for public and private employers. James publishes a weekly newsletter with 7,000 readers.

He currently possess press credentials and am invited to various national Workers Compensation conferences as a reporter.

James’s articles or interviews on Workers’ Compensation have appeared in the following publications or websites:

  • Risk and Insurance Management Society (RIMS)
  • Entrepreneur Magazine
  • Bloomberg Business News
  • WorkCompCentral.com
  • Claims Magazine
  • Risk & Insurance Magazine
  • Insurance Journal
  • Workers Compensation.com
  • LinkedIn, Twitter, Facebook and other social media sites
  • Various trade publications

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