Insure Your Future

The Challenges Of Workers' Compensation Self-Insurance

6 July 2020 by Sue Palmer

In some states, employers can buy workers' compensation insurance or insure themselves. Some businesses opt for the self-insurance option since they don't have to pay premiums to insurance carriers. Unfortunately, self-insurance does have cons that you should know before you take that route. Below are some of the challenges you have to worry about when you self-insure.

Claim Prevention

When you buy workers' compensation from an insurance carrier, the carrier will help you minimize your exposure to workers' compensation claims. The insurance companies have the resources and experience to do this. The carrier helps themselves when they help you minimize claims — fewer injuries in your business can mean lower or at least fewer claim payouts.

You won't get such help if you decide to self-insure. If you are not careful, self-insurance might lead to more injuries (and claims) than you would have if you bought coverage.

Qualification Hurdles

Even in states that allow self-insurance, not every employer will qualify for the option. Depending on state laws, you might have to:

• Post collateral for the self-insurance program
• Prove that you have the financial resources for self-insurance
• Submit audited financial statements for evaluation

Buy workers' compensation insurance to avoid all these hurdles.

Cash Flow Issues

If you opt for self-insurance, then you must have the money to pay out claims if they arise. This requirement might sound good in theory, but it can be troublesome in practice. Business cash flow fluctuates a lot. You also can't predict claim sizes in any financial period. You don't have to worry about such unpredictability when you buy workers' compensation insurance.

Administration and Management Complications

You give your business one more thing to do when you opt for self-insurance – management and administration of the insurance department. You have to investigate accidents, authenticate stories, and process claims. Some avoid in-house administration and contract third parties to administer their claims. That is one more expense you can avoid if you purchase workers' compensation coverage.

Risk of Lawsuits

You don't have to worry about injury lawsuits if you have workers' compensation insurance. Even if an injured worker isn't satisfied with their compensation, their complaint will be with the carrier and not you.

As a self-insured business, an injured worker can sue you if they don't agree with their compensation. A lawsuit can waste your time, cost you money, and tarnish your reputation.

Buy workers' compensation insurance to shield you from the complications of self-insurance. Talk to an insurance agent today to get workers' compensation insurance coverage.

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