Self-Insurance FAQs

How is a self-insured group typically formed?

After a feasibility study is completed and proposed members sign a letter of intent, the law requires the group to submit an application to the Workers’ Compensation Board Chairman that includes:

• A trust agreement signed by each of the trustees on behalf of all current and future members of the group.
• A current payroll report by classification for each participating employer for the preceding annual fiscal period (including the current total number of employees for each employer).
• A participation agreement duly executed by each employer participating in the group as prescribed by the Chairman.
• The group’s consent permitting the Chair’s authorized representative access to the premises and to audit relevant records of the group administrator, the group trustees, and/or any individual employer in the group to examine operations and records.
• A certified, independently-audited financial statement for the group.

The chair then sets the amount of the bond that must be posted. In some instances, members must deposit securities and/or cash, or file an acceptable surety bond. In many instances, members are asked to provide an irrevocable letter of credit. Posting a bond or an irrevocable letter of credit may affect the future borrowing ability of your business.

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Is a self-insured trust guaranteed?

Unlike the Guaranty Fund for private insurance companies, there is no guaranty fund to protect policyholders or claimants if a self-insured trust becomes insolvent, impaired or has other financial difficulty. The legal burden to pay remains with group trust employers.

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What are the implications of group self-insurance plans?

Every member of the group is responsible for each others’ losses. In addition to being responsible for the losses of all group members, employers could also be responsible for the losses suffered by other self-insured insolvent groups. The legal term for this is called joint and several liability.  It is critical to know who the other group participants will be. Do they have a similar loss experience to yours? Are they of similar size? Who decides who can enter the program at a later date? These issues are critical since all members are joint and severally liable.

If the self-insured group has a poor year, a group member could receive an assessment. Sometimes this risk is mitigated by the purchase of reinsurance on an occurrence or aggregate basis.

If a company is privately held, it must share certain financial information with other group members who serve as trustees.

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How does one get out of the plan?

It is not easy and can be costly to extricate yourself from the plan. This is self-insurance and the group is responsible for any claims that individual members leave behind. You may pay a penalty if you leave the trust. Posting a bond or providing an irrevocable letter of credit can affect a business's ability to borrow money for future needs.

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How do self-insured groups establish premium for their members?

Trust administrators have the right to establish their own rates and are not required to use the New York Compensation Insurance Rating Board’s rating schedule. NYCIRB Experience Modifications are not maintained for members of trusts, who lose their experience mods upon entering a self-insurance plan.

Your initial cost is a “contribution” and may not reflect your true premium cost. Any shortfall in contributions, or a WCB mandated increase in security, could result in group members receiving an assessment to stabilize the trust.

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What are other concerns for a business considering self-insurance?

Anyone considering a self-insured plan should keep careful records concerning their individual losses since they will lose their experience modification. Also, while they can control their own losses, they have very little control over the losses of other group participants.
 
Anyone who is fully insured has, as a part of their workers' compensation coverage, Coverage B-Employers Liability coverage. Self-insurers are not afforded this protection and may have to purchase it themselves.
 
Participants must concern themselves with aggregate stop loss insurance. While excess insurance on a per occurrence basis is usually required, there is usually no requirement that the group purchase aggregate stop loss coverage.

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