Intro to Self-Insurance

There are many different types of workers’ compensation programs available, with self-insurance being one of them.

Self-Insurance is a self-funded workers’ compensation plan in which the insured assumes the financial risk for providing workers’ compensation benefits to its employees. Approval is required from each individual state, so being self-insured in one state does not automatically make you are self-insured in another state. Additionally, there are several states that do not offer self-insurance, and some will only allow certain types of businesses to be self-insured. 

The three main benefits of opting in for self-insurance are:

Potential cost savings
Unbundled program
Collateral requirements

Potential Cost Savings

While not currently mandatory in the in the state of Illinois, opting to purchase Excess Workers’ Comp coverage will offer cost savings. The premiums are substantially less than what you may think. This is primarily because the insurance carrier does not carry any financial responsibility. If you file for bankruptcy or fail to pay a claim, as long as the claim does not exceed the retention, the carrier is not responsible which eliminates their credit risk.

Benefits of an Unbundled Programs

When you are self-insured, it is common to be enrolled in an unbundled program. This allows you the freedom to choose your own third-party administrator (TPA) to handle your claims, giving you greater control of your claims. Additionally,

Collateral Requirements

the collateral requirement imposed by the state is typically lower compared to what is generally seen on a standard large deductible program. Moreover, there are multiple ways available for posting collateral, such as using a letter of credit, escrow deposit/cash, or a surety bond.

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It is important to note that self-insurance operates differently from a conventional workers’ compensation policy. Unlike an insurance policy with effective/expiration dates, self-insurance is a continuous arrangement until terminated. Instead of renewing the policy annually, the state conducts their annual renewal process to determine if you are still qualified. This typically takes place around the compellation of your year-end financials.

If you believe self-insurance is right for your organization, please reach out to a member of our team.

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Natalie Nowik

Natalie Nowik is an Account Executive at Marsh McLennan Agency (MMA) who specializes in the staffing industry. She takes a personalized approach with clients so she can fully understand their unique motivations and needs. Natalie earned her Bachelor’s degree in Finance from Illinois State University, where she also minored in insurance. She currently holds her Associate in Insurance Services (AIS) and Associate in General Insurance (AINS) designations.