The Advantages of Self-Insuring Workers' Compensation

(i) Reduced Costs

Costs are lower as the self-insurer retains the profits and costs that are normally built into traditional insurance premiums. There are also reduced costs as claims are often lower as claims are improved due to the self-insured having a vested interest in preventing claims as well as controlling costs through more hands-on managed care services.

(ii) A More Contented Workforce

A more contented workforce with better employee relations can be created as a result of improved training and loss controls creating the impression that the employer is more caring.

(iii) Generation of Investment Income

Investment income is generated on funds set aside to pay claims.

(iv) The Ability to Control Exposures

The purchasing of specific and aggregate reinsurance can control risk and financial downsides.

(v) Improved cashflow

Improved cash flow as claims are paid when medical bills or benefits are required to be paid. Whilst self-insurance has distinct advantages to a self-insurer a company also needs to be aware of its increased responsibilities which include the following:

1. The responsibility of administering and paying claims rests with the employer.
2. The employer is required to fund the self-insured retention.
3. Unless the employer is of a sufficient size it may present an unnecessary diversion from its business activities.
4. If the loss experience is poor the company may be penalised.