For companies with the available resources, choosing to self-insure their workers’ compensation plan may make sense over going through a third-party insurance company. However, it’s important to consider the pros and cons before making that decision.
Advantages of Being Self Insured for Workers Comp
There are many reasons, for companies who qualify, to self insure for workers comp, provided they are operating in a state that allows them to do so. Some of the primary reasons include:
- Reduced premium expenses.
- Ability to design a plan tailored to the company’s needs.
- Frees up cash flow for other business needs.
- Have greater control over claims management and payouts.
Disadvantages of Being Self Insured for Workers Comp
Companies who appreciate the many advantages of self-insuring, need to also take the disadvantages into consideration. Some companies may have the financial resources to self insure for workers comp but there is more to self-insuring than having the money to pay the claims. Other considerations include:
- The nature of claims is unpredictable, requiring ongoing liquidity of funds.
- The potential for a catastrophic event causing significant damage to multiple employees must be considered.
- The specialized skill set required by those who manage the claim in-house, or the cost of a third-party administrator.
Self-insuring a workers’ compensation plan is a big decision that can provide many long-term benefits to companies who qualify.