In California, every employer must either have workers’ compensation insurance or become self-insured.  Given the rising workers’ compensation costs, including the costs of defending these claims, the option of self-insuring becomes more and more appealing as every dollar counts more and more.

Many of the advantages of self-insuring are outlined here by Thomas Harbinson, Esq.

Overall, the medical costs and permanent disability indemnity, along with all the other workers’ compensation benefits, will hit self-insured employers and insurance companies alike.  But, if an employer can self-insure, there are several advantages that make that initial investment worthwhile.

The first advantage is control – a self-insured company gets to make sure that the loyal, hard-working employees are taken care of.  The company also get to make the decision about whether frauds should be fought tooth-and-nail for every inch of ground or given Danegeld.  Local control allows a company to bring its culture and history to the workers’ compensation arena.

Another advantage is cost-saving.  Imagine a company owns an insurance company as a subsidiary – and all the profits can either go back to the parent company or lower the price for the one customer (the same parent company).  The profits previously owned by the workers’ compensation insurer are staying within the “family” coffers.

One of the other advantages is to pool the lobbying resources as a self-insurer.   There are groups such as California Self-Insurers Association that pool advocacy dollars to advance not only those interests that self-insurers share with insurance companies, but the specific interests of self-insurers as well.  This includes lectures, seminars and training sessions specifically for self-insurers.

But there are some drawbacks as well that need to be considered.  For entities with relatively small claims files, the insurance companies will do the job cheaper because of economies of scale.  However, the answer to that is to join a self-insured group.   This allows several companies to pool their resources together and (hopefully) save on the costs of insuring their employees.

And remember – self-insured doesn’t necessarily mean self-administered.  There is a spectrum of options from just sending a check to a workers’ compensation insurance company to keeping it all in the company.

Another drawback is the (erroneous, I believe) perception that employers will be seen as the “bad guy.”  However, if a worker feels he is not being taken care of fairly when he is hurt, he’s going to blame the company that hired the workers’ compensation insurer as much as the employer, whether there is self-insurance or not.

In either case, self-insuring is an option that should be explored and considered when ends must be made to meet.