Self Insurance Pandemic Effect – Workers Comp Ouch!
Workers Comp Self Insurance Pandemic Effect – The Quiet Part Pandemic articles seem to have faded since the start of 2024. One could not read
April 7, 2025 No Comments
Self insurance is when an employer pays their own workers’ compensation claims instead of buying a voluntary market policy.
The process involves a large employer qualifying to become self-insured.
Each state has its own specific laws on self insurance. Almost all states allow qualified companies to become self-insured.
The qualifications for paying claims directly out of an account are usually $500,000 in liquid assets per state; having reinsurance for catastrophic claims; possessing a security bond in case of company failure, and hiring a Third Party Administrator (TPA) to handle the claims.
A self-insured may handle the claims in-house without an outside TPA with state approval.
The respective states’ Department of Insurance is tasked with administering the programs.
If a self-insured company fails or files for bankruptcy, the cases will be handled by a Guaranty Association. These associations are funded by levies on each self-insured in the state.
During the 1990s many self-insured companies failed which caused a large transfer of claims to the Guaranty Associations. When claims are transferred to the Association, the claims may experience a long delay with proper handling.
The Risk Management for self insurance is quite different than a regular voluntary market policy. A Loss Development Factor (LDF) calculation is necessary to replace the E-Mod system with a regular Workers’ Comp insurance policy.
The LDF comes from actuarial projections of claims development for 10 years.
The risk manager must follow the claims closely. The TPA or in-house adjusters spend direct budgetary funds to pay the claims.
The self insurance Loss Run reviews become very critical for any budgetary concerns.
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