Self-Insured Workers’ Compensation

Self-insured groups like the CRMBC are workers’ compensation cooperatives – members pool the money they would otherwise give to an insurance company so they can have greater control over how that money is used. Insurance companies profit from the money they receive from the companies they insure. The CRMBC takes those dollars and makes them work for the employer member.

The members of the CRMBC are responsible, as a group, for the liabilities of the program – claims costs and associated expenses. This is the risk in the program, but the rewards are substantial. The CRMBC helps insulate employers from dramatic increases in the standard insurance marketplace and has the potential to return excess surplus to members when group performance is better than expected.

Self-Insured Programs Versus Traditional Insurance Companies

Insurance companies do not always have the same incentives as employers. For example, while employers want claims to close quickly, insurers can earn more money when claims stay open longer because they make their greatest revenue from investments. It is important for every employer to understand that whatever form of coverage they choose, claims will drive their long term cost, so they should look for the best program available. Employer costs in Self-insured groups tend to be more directly tied to performance of the employer and cost control of the group, instead of broader market trends and the drive for shareholder value.

How Self-Insured Groups Work

A. The Group

Each member pays into the group according to their own payroll and experience, just as they do with an insurance company. The group absorbs the costs of all members – if a member has poor claims experience during a year, it is absorbed by the group. A member does not need to pay more because they individually had a bad year. Certified actuaries are used to predict losses and to support the development of rating plans that will fund the group correctly, including the required reserves.

When a self-insured group controls its costs well, it can develop excess surplus that it may return to members. These returns are sometimes called “dividends” – not really the correct term, as self-insured groups are non-profit organizations – but the concept is to return every possible dollar to members when it can be done safely and securely.

Just as members of self-insured groups can be eligible for the return of excess surplus created by the program, they also share responsibility for additional costs of the program. The Joint & Several Liability agreement defines that responsibility.

B. The Administrator

Claims are administered by an independent professional management company, know as a Third Party Administrator (TPA). For the CRMBC, this service is provided by American Claims Management, a well-established TPA committed to providing superior claims services and innovative solutions since 1988. As program manager, CHSI provides cost containment, underwriting, financial and technological services to deliver best outcomes. The authority for a self-insured group lies with its Board of Trustees, representing the employer membership. CHSI reports on all aspects of operations to this Board, from Fortune 100 level financial statements to detailed tactical planning.

C. Comprehensive Protection Against Large Losses

CRMBC members are protected against catastrophic claims (fatalities and very serious injuries) through excess insurance coverage secured for the group. In the event of such a claim, the group pays the initial Self-Insured Retention (SIR), in this case $500,000, and the excess insurance carrier will pay all additional costs for the life of the claim. This coverage also extends to all claims that come from a single occurrence. For example, if there was an event that produced two fatalities and five serious injuries, the group would pay a total of $500,000 for all of the claims. The excess insurance carrier would pay for all additional costs, no matter how many millions of dollars were involved.