Many companies secure workers’ comp insurance through third-party providers. Self-insured groups are another option that gives employers more control over claims and costs associated with on-the-job employee injuries.
What are Self-Insured Groups?
A self-insured group, or SIG, is an association of employers, usually in the same industry, that join together to provide workers’ compensation coverage to their employees. A third-party administrator (also known as a TPA) is usually hired to handle the day-to-day operations, such as managing claims.
Who should join a SIG?
Since self-insurance is state-specific, and a few states don’t allow companies to self-insure for workers’ comp, the first step is to check the US Department of Labor’s directory to understand your state’s laws and regulations.
Assuming eligibility, SIGs are often an ideal option for small to midsize businesses within the same industry or trade that want the benefits of self-insuring but can’t do so for financial or size reasons.
What are the benefits of joining a self-insured group?
When run correctly, there are several benefits for employers who belong to a self-insured group.
One of the main benefits of a self-insurance group is financial savings. With traditional workers’ comp, companies have to absorb hefty annual premiums in addition to high administrative costs, taxes, and residual market charges.
SIG members, however, pool their premium, each contributing to a trust that pays for covered losses, claims management, and other administrative expenses.
One study found that self-insured employers saved an average of 21% in California. Overall cost savings will depend on expenses and the amount of claims submitted by each organization.
Potential for money back
Any leftover profit at the end of a year is shared among the participating members as a dividend. Smart management of claims, expenses, and investments can help generate this surplus. Calculating each employer’s compensation is usually based on rules created by the Board of Trustees.
More control over claims handling
Regarding claims, self-insurance groups have the advantage over traditional workers’ comp because they have more control over the claims process, enabling them to decide whether to accept or deny claims. This approach allows them to identify and investigate potential fraud and abuse cases proactively.
Additionally, a self-insurance group has a more significant role in their members’ rehabilitation, resulting in a quicker recovery time, reduced claims costs, and an overall better rate of success.
Self-insurance groups have a vested interest in preventing claims from happening in the first place. Therefore, they provide more resources for improving workplace safety and risk reduction.
Traditional workers’ comp relies on insurance companies to provide safety programs and resources. A SIG directly controls these programs and can allocate resources and funds toward specific areas and best practices.
Tips to staying viable
From underestimating incurred losses to charging low rates, self-insurance groups can suffer significant setbacks. Inadequate planning can sometimes lead to catastrophic outcomes for these groups.
However, a SIG can avoid potential disasters by taking the necessary steps to ensure the necessary precautions are in place.
Remember, if each member is profitable, the whole group is profitable. One way to ensure this is by reviewing underwriting regularly. Develop a process to audit accounts based on factors such as loss history, size and renewal time.
A SIG board is governed by those representing member companies, meaning they don’t necessarily know the ins and outs of workers’ comp, underwriting, claims, and other essential insurance information. Group administrators must keep board members engaged and provide ongoing education opportunities so they can better understand the process.
While self-insurance groups offer the most effective way to deliver workers’ comp to employers, they still compete with standard insurance carriers in their state, many of which have updated their outdated systems to more modern digital experiences.
That means SIGs are losing new members to insurance carriers who offer technology like mobile apps, online bill pay, and quick underwriting. Simply put, SIGs want to be self-service!
With the help of InsurTech companies like Trailblazer, self-insurance groups can embrace innovation to make their user experience faster, simpler, and more efficient.
Joining a SIG saves employers money while providing specialized loss control services, efficient claims handling, and potential profits through dividends.
Discover how cutting-edge software solutions can give your self-insured group a competitive edge. Request a complimentary demo today to experience the power of Trailblazer Technology’s products in action.