STEPS TO SELF-INSURANCE
We've listed some principle steps to becoming self-insured. While it's not necessary to follow these in order, the information gathered for the feasibility study is important to the remaining steps.
PRINCIPLE STEPS TO BECOME SELF-INSURED:
The Feasibility Study
Do the numbers work for us?
An insurance broker, insurance consultant or claims administrator can assist you with a feasibility study. The feasibility study looks at the past claims, payrolls, and premiums, and develops "expected" claim levels for future years. When completed, the feasibility should answer the question, "Do the numbers work for us?"
State Approval
Each state regulates who may be self-insured for workers' compensation. Normally, a prospective self-insured submits a required application accompanied by audited financial data, prior workers' compensation loss history, and other information required by each state. The state will then approve or disapprove the application. Your insurance broker, insurance consultant, or claims administrator can help you with this application process.
Selection of Claims Administrator
When it comes time to make a choice, consider it a professional service and don't choose by price alone.
The success of any self-insurance program partly depends on the work of the claims administrator. A good third party administrator becomes an extension of your company and plays a key role in managing claim dollars. Interview several prospective service companies to discover claim management philosophies, background of staff and details about data system and reports, etc. When it comes time to make a choice, consider it a professional service and don’t choose by price alone.
Loss Control
For self-insurance to really work, there must be a strong commitment to loss control. Whether you have inside loss control staff or use an outside loss control service, there must be a commitment to making your workplace as safe as possible.
Excess Workers' Compensation Insurance
We've explained how the excess coverage works. Your insurance broker or TPA can help you obtain quotes and discuss with you what limits and self-insured retention to consider.
State Security Requirement
All states require a bond or letter of credit from self-insureds to guarantee payment of claims in the event the employer is unable to pay. If you chose a letter of credit, you will need to work with the state regulator and your banker. If you choose a bond (required by many states), the insurance broker or TPA working on your excess quotes can help you obtain a bond quote.
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