Self Insured Pools Are Really Worth It ?
Self Insured pools for Workers Compensation can be a great risk management technique. An employer that is not large enough to be self insured may find that pooling their premiums and risk with homogenous entities to be a great budget saving technique.
Self insurance pools have seemed to lose popularity over the last few years. I think some of it is due to bad press. Some of the reasons for the bad press was justifiable. There are a few areas to consider when joining self insurance pools.
- Are the groups homogenous or at least somewhat similar. Predicting risk for a pool where the insureds are not related can be difficult. If you are a restaurant , would you want to be in the same pool with an oil transporter?
- When do assessments from the pool occur?
- If your company leaves the pool or if the pool fails, for how long can your company receive assessments into the future? We have clients that are still being assessed five years later.
- Is the law of large numbers in place? How large is the pool? If you only have a few members and one of the companies has a very bad year, your company may have to pay very large assessments while having a great safety program.
- How are the Mods or LDF’s calculated? How does the pool differentiate the risk among members?
- Who is going to handle the claims? Some TPA’s are better than others.
- Why did the prior members leave the pool?
- Are all the legal requirements met for each state? What happens if your company expands into another state or states?
- As a member, what are your company’s voting powers? What voting powers does the administrator have in meetings? The administrator may have more votes than each individual member
What happens if the pool fails or is deemed insolvent by the state?
- What happens to the claims if the pool fails? Does the pool pay into some type of state insolvency fund? This is very important as a way to avoid being stuck to handle your claims after already paying into the pool.
- What percentage of the total operations budget is held back to pay claims? Most states consider any type of insurer or pool insolvent at less than 15%.
- Who is the reinsurer? Can you obtain a copy of the reinsurance contract?
There are many other considerations. I wanted to list a few of them. The questions come from files that have been shipped to us to handle after a pool fails and there was no backup. I basically reversed engineered the questions.
Bottom Line – pools are great for self insurance if properly investigated and all angles have been examined before joining the pool.
I may be a little jaded to them as we have had to handle many claims where:
- The pool failed.
- There was no state backup to handle the claims.
- The reinsurance contract gave the reinsurer an out.
- The claims had not been adjusted for over 90 days.
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