Workers’ compensation coverage pays benefits to workers injured on the job, including medical care, lost wages and permanent disability. It also provides death benefits to dependents of employees killed from a work accident. Workers’ compensation regulations are different in every state, as individual statutes and court decisions have shaped the way they handle claims and pay benefits.
Most employers comply with these laws by purchasing workers’ compensation insurance from a traditional insurance company. However, with workers’ compensation costs rising, many large employers are choosing to self-insure. Employers that self-insure must comply with these same workers’ compensation laws, the difference being they’ve taken the responsibility for paying their own claims.
Most self-insured companies do not handle their own claims. Third Party Administrators (TPA’s) specialize in providing claims administration and loss control services for self-insureds. They contract with employers to provide these services for a fee. Special care should be given to make sure the TPA’s service offering lines up with the employer’s approach to risk management and claim handling.
Although employers take on the financial risk when self-insuring, they are able to limit their risk through the purchase of excess insurance policies. Sometimes referred to as stop-loss, or reinsurance, the excess policy is one of the most crucial elements of self-insured workers compensation.
This coverage protects against large, catastrophic claims incurred in a single accident. Per Occurrence reimburses the employer when losses for a claim exceed a specific deductible. Deductibles typically range from as low as $50,000 to as high as $2,000,000 depending on several factors including company size and risk tolerance.