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Self-Insured Groups vs. Private Insurance Companies Comparison from Cal-Nevada Insurance Agency

Employers have several options from which to choose in obtaining workers compensation coverage. This includes traditional insurance through private insurers, self-insurance and self-insurance groups (SIGs), among others. Self-insurance is typically for larger employers who can meet the significant financial standards to self-insure in their own right. Smaller businesses may consider self-insured groups if they are unable to meet the criteria for self-insurance. Group self-insurers consist of employers performing related activities in a given industry that contractually agree to assume the workers compensation liabilities of each associated member. Here we take a look at the differences between self-insurance groups versus private insurers for workers compensation to help you in deciding what’s best for your business.

What are the cost differences between a SIG and an insurance company?

Self-insured groups may initially be more attractive but it’s important to note that the risks are greater for an individual business. The primary source of funds for payment of claims is income to the SIG from contributions paid by its members ((comparable to premiums paid by employers to insurance companies). Reserves are set aside to pay benefits that will be required in future years as a result of injuries occurring in that year. But if a SIG does not have the money to meet its obligations, it can collect additional assessments or contributions from all members to make up for the deficit. You share equally for the claims of other SIG members, even if your business has sound loss control protocols and a good safety record in place that results in few losses.

With a private insurance company, the premium you pay is based on your firm’s own loss history, total payroll and type of business, and you are not responsible for any other business’ losses. An experience modification factor is determined that represents your claims history over a three-year period and safety record as compared to other businesses in the same industry. If your losses are better than expected, you will get a premium discount.

What is your liability exposure for each option?

Each member in the SIG is jointly liable for the costs associated with the group’s claims. As stated above, if there isn’t enough money in the reserves to pay for the claims, additional assessments will be collected from each member. As an insured with a private carrier, you are only responsible for your own claims.

What is the claims process when an employee is injured on the job?

Each SIG is controlled by a board of trustees, at least two-thirds of which must be representatives of employer members. In addition, most trustees will hire a group administrator and a licensed third party administrator (TPA) to handle many of the day-to-day functions of running the group and its claims. With private insurers, their existing claims department and managed care services will provide claims management and handle all medical care costs and wage replacement benefits.

What are the ramifications in the event of a severe and catastrophic claim as a result of a major work-related injury?

With a SIG, if an employee suffers a major injury or death, it is critical that the group have sufficient funds in reserves to cover all medical costs, lost wages and death benefits involved. If the reserves are not enough to cover the loss, each group member may have to contribute additional funds.  A private carrier, on the other hand, will pay for all costs in the event of a catastrophic workplace injury or death. In addition, in the event of an injury, many carriers have return-to-work programs to help employees make the transition back into the workplace under the guidance and care of a physician

Can you change from a SIG to purchasing workers compensative coverage from a private insurance company?

This will depend on the provisions of the SIG. It may be difficult to leave the group so it’s important that all terms and conditions are reviewed carefully. In some cases, you may also still be financially responsible for claims-related costs incurred while you were a member of the SIG. With private insurance, when the policy term ends, you can opt to renew with your existing carrier, change carriers, join an existing SIG, or self-insure if that makes sense.

At Cal-Nevada Insurance Agency, our professionals can discuss in more detail with you the various workers comp options available and what is best for your business. For further information or to schedule a meeting with an advisor, contact us at (866) 670-5948, or e-mail us at