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.
- 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.
- 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.
- 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.
- 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.
- 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 $$.
- 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).
- 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?
- 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.
- 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.
- 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.
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