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The Workers Comp Self Insurance Risk No One Talks About


Workers Comp Self Insurance Risk – The $250,000 Repetitive Mega Claims

I sometimes forget to mention the self insurance side of Workers Comp Risk Management.   A certain Workers Comp self insurance risk conversation seldom occurs in voluntary insurance vs. self insurance decisions.

picture of confidential self insured workers comp risk cover sheet
Public Use License – Library of Congress

Voluntary insurance may seem like an unused commodity when a premium is paid by a large company but little or no claims are ever filed.  Self insurance may seem like the best course of action to save on premiums.

Most of the time, this angle on Workers Comp risk management may be very accurate.  The other side of the proverbial coin that seems to be ignored is when a company must face multiple mega claims.

A mega claim as defined by the rating bureaus is any claim that has reached an incurred value of $3,000,000.    I consider any mega claim that reaches $250,000.  As I have often mentioned, $250,000 is an almost magic number where many file functions kick in at that level.

Reinsurance is Not Catch-All Insurance

Many self insureds have mentioned to me that “We are good, reinsurance kicks in at $250,000”.   This may be true.  With the COVID crisis and the lowering of company budgets – do you really have $250,000 to spend before the next level of insurance?

If your company or organization has two or three claims that have reached the $250,000 level, the level of self-funding can be very tough in this economy.   Renewing your reinsurance policy may have a sharp premium increase surprise.

Why am I writing this article – because I have that situation right in front of me – where a medium-sized company is funding $750,000 for three claims out-of-pocket when their financials cannot support such a large budget output.

Using a few risk management claim techniques,  some of the risks can be reduced – however, not all of the risk can be eliminated through loss control. 

Loss Limits and X-Mods

Digital Machine workers comp self insurance risk paying with credit card
Wikimedia Commons – Hloom Templates

One aspect of voluntary insurance is Loss Limitations.  The loss limits control how much the X-Mods can be affected by one claim.  If you look on your Experience Modification Factor sheets, the # sign denotes that a loss limitation has occurred on a certain claim.  The # sign is usually located in the Total Incurred Column.

The loss limits can be very high – well beyond $250,000.   They function similarly to reinsurance if you think about it for a moment.  They cut your losses at a certain point.

My point here is that at least there is a ceiling (in most states) how your X-Mod can be affected over the next four years.  That is not the case if you with Loss Development Factors (LDF).   Think of an LDF as a self insurance Mod.

Voluntary Insurance and the Workers Comp Self Insurance Risk

Voluntary insurance may seem much more expensive than the self insurance option – then again maybe not if you experience multiple large claims.

Here is a very important point – the insurance carrier remains on the hook to handle and pay the benefits on multiple mega claims.  Your X-Mod increases, then again, it may be a cheaper option than paying $750,000 straight out of your budget as in the previous example.

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James J Moore - Workers Comp Expert

Raleigh, NC, United States

About The Author...

James founded a Workers’ Compensation consulting firm, J&L Risk Management 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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