Self-Insurance Quiz Answers – Did You Make The Cut?

Self-Insurance Quiz Answers

If you wish to take the quiz first without seeing the answers, please go here.  State-specific answers are OK even though these quiz questions were meant as generic as each state has its own unique self-insurance rules and regulations.

Many of the answers can be found by using the search box on the J&L website.

1. Are large-deductible programs considered self-insurance? Why or why not?   No, large-deductible insurance is not technically self-insurance.  One of the most important aspects is that large-deductible programs still have their claims reported to the Rating Bureaus for Experience Modification Factor (E-Mod or X-Mod) calculations.
2. Do any states not allow workers comp self-insurance? If so, which ones? All states allow self-insurance.  I try not to give out blanket answers such as “all” or “none.”  The key here is that states have a large variability in their requirements.  
3. How are claims paid when a self-insured has a bankrupt status? Self-insureds will usually provide a bond or Letter of Credit that is “cashed in” whenever a self-insured cannot pay its own Workers Comp claims.  The state usually has an assigned TPA to process the claims.  That is why the self-insureds must carry a large bond or Letter of Credit to become self-insured.  Many states have a self-insured guaranty fund that administers the moving of the claims from the self-insured TPA to the guaranty fund’s TPA. 
4. What is the most expensive part of a workers comp self-insurance program?  The most expensive part of a self-insurance program is the indemnity, medical, and Allocated Expenses that are paid on each claim.   The other part of the process that becomes expensive very quickly is that a Letter of Credit or bond must be specified for each state of operation.
5. What is the #1 mistake that J&L sees with companies that are pursuing workers comp self-insurance?  Thinking that just because it qualifies for self-insurance does not mean that an employer should become self-insured.  Vanity costs $$.
6. What is reinsurance? What two main loss values are covered by reinsurance?  Reinsurance is purchased by a self-insured which covers a large claim that reaches a certain per-claim level(such as $250,000) or an aggregate of claims level (i.e. $2,500,000.00).
7. What is the first hurdle that your company must clear to qualify with a state as a self-insured? The level of liquid assets in a certain state is usually the first qualification listed in the rules.  In other words, if a company does not have enough assets in a certain state, how will they pay their Workers Comp claims?
8. Can a self-insured also have a regular voluntary market workers comp policy? Yes, many of our clients are self-insured in one state but do not qualify for self-insurance in another.  The client employers purchase workers comp policies in states where they cannot be self-insured.
9. Are there any state-imposed penalties for switching back from self-insurance to a large deductible or voluntary market policy? No, not that I know of – the main concern is that the employer has some type of Workers Comp policy to cover an incident. 
10. How often should a workers comp self-insured perform a claims and reserve level review?  Our suggestion is at least monthly.  Having online access enables ad-hoc claims reviews at any time. 

Answers to Bonus Questions

These two Bonus self-insurance quiz answers will help your score if you answered them correctly.

Bonus #1 – Which insurance industry personnel become beyond critical for assessing whether or not to become self-insured and to project the incurred costs of the program?  Actuaries and in turn, Risk Managers should have the final approval.  

Bonus #2 – Can an employer use an offshore captive for a workers comp self-insurance program?  Yes, the feasibility study and tax implications should be covered extensively before placing a self-insurance program into an offshore captive.  The micro-captives have received a large amount of attention from the IRS.  

If you disagree with any of the self-insurance quiz answers, please add a comment below.

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