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.

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.

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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