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Self-Insured Versus Group Self-Insured Workers’ Comp

Most states require businesses to provide workers’ compensation insurance for their employees. Companies can supply coverage by purchasing a plan through an insurance company or they can engage in self-insurance. The latter involves establishing a fund that is used by the company to pay any workers’ comp claims. It is an increasingly popular alternative to traditional third-party plans and comes in two forms: self-administered or group programs.

Self-Insurance Programs

Larger businesses are often able to operate their own self-insured workers’ compensation plans. This means that they independently create a fund that is used to pay claims. They also carry out the administrative responsibilities of managing the insurance program. While this can offer savings and flexibility, there are also disadvantages. For instance, the administrative duties associated with self-insurance can be difficult and time-consuming.

Group Self-Insurance Programs

Self-insured groups have arisen as an alternative for those who want to engage in self-insurance, but do not want the responsibilities and risks associated with running their plans. Groups allow employers to pool their workers’ comp liability. Moreover, they typically consist of companies in similar industries, which helps them manage risk. However, like independently operated self-insurance programs, group self-insurance plans also have drawbacks. For example, each member of a group may need to make unexpected payments into the communal fund should claims be very high during a certain period.

Both independent and group self-insurance plans are becoming more common, and each comes with advantages and disadvantages. An expert in the insurance field can assist in determining whether either is right for your company.