Alternatives To Traditional Workers Comp Insurance Policies
Many alternatives to the traditional Workers Comp programs are available in today’s insurance marketplace. The trend is when the traditional WC insurance marketplace becomes expensive and employers search much more intensely for alternatives to the regular WC insurance programs. Most carriers do have non-traditional WC insurance programs in place, and more alternative programs are being added daily.
Small deductible – An insurance plan that allows the employer to pay their own WC claims up to a certain amount, usually $500.Some states require the employer to file the claim with their insurance carrier even though the claim stays below the deductible. One very important pitfall is the claim may develop into a serious claim before it reaches the deductible, and the WC adjuster would have no knowledge of the claim.The small deductible concept goes against #1 of our Four Secrets to Saving WC $.If an employer holds the First Report of Injury, serious claims problems could develop before the claims adjuster can properly handle the initial part of the claim.
Self-Insurance Pools – These enable common employers or associations to pool their money together as a group to pay WC losses. A Third Party Administrator (TPA) handles the claims. Almost all states allow self-insurance pools if the pool can meet certain minimum requirements such as the funding and viability of the pool.
Assigned Risk Plan/Risk Pool (ARP) – please refer to the definition in the WC Insurance Definitions section. The ARP is not a voluntary choice. The rates in the ARP are much higher than the general voluntary marketplace. The ARP is the fail-safe insurer if a company cannot find any insurance with any carrier due to high E-Mods, type of business, unsafe workplace, dangerous occupations, etc. The insurers are required to write a certain percentage of their business from the ARP. The use of the techniques in this manual will enable your company to get out of the ARP unless the voluntary insurance marketplace is not writing WC insurance for your type of business.
Loss Sensitive Plans – There are numerous plans of this type in the WC insurance marketplace. Their main characteristic is that an employer is willing to chance that their company will have no or little WC claims for a given period of time. However, if an employer has just one bad claim, or more than a very few claims in a specified time period, their insurance WC rates will increase exponentially. Loss Sensitive Plans look good on paper, but they can possibly end up costing an employer more $ than if they were in the above-mentioned ARP.
Captives – Check out this post on captives.
Self-Insurance – If your company is large enough, most states will allow you to self-insure for WC losses. Self-Insuring is a cost-effective method to remove your company from the expensive WC insurance system. Your company will pay all claims from your internal budget. All insureds that we have assisted in becoming self-insured have saved WC $ over a three year time period.
The following is an example of the minimum requirements by a Department of Insurance (DOI):
- The employer must have $500,000 in fixed assets.
- A performance bond must be purchased and renewed every year.
- The employer must file with the DOI 90 days before they wish to self-insure.
- The employer must have reinsurance at an acceptable level.
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