Self Insurance Basics – What it is and How it Works

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Self insurance is defined as setting aside funds to cover the insurance requirements of a business or organization. This is a viable method of self funding risk management, but it comes with some caveats, statutory obligations and a need for a good working group of management systems.

The self insurance option

Self Insurance is regulated by law, giving exemptions employers from compliance with a range of statutory obligations relating to workers compensation insurance. A licensed employer doesn’t pay insurance premiums for workers compensation. They manage their own risk and control compensation claims administration for their employees.

There are good financial and administrative reasons for this approach. The suggested viable size for self insurance for Australian employers is 750 employees. This is a large number of people, and the premiums involved can be significant outlays. In effect, the employers take on the liabilities for workers compensation on the basis of assuming responsibility for coverage.

This is an efficient and popular method of dealing with workers compensation. It’s also very practical, and allows employers to manage the costs and issues in-house. The actual statutory requirements are based on clear cut regulations, and licensing is administered by the various regulators.

Self insurance in practice

In practice, self insurance needs a level of customization in relation to the type of industry of the employer.

There are two basic fields of administration:

• Employee programs: A series of programs regarding workers compensation, injury management and return to work are part of the standard mix of in house operations. OHS management systems, on-site injury management practices and appropriate industry-specific of workplace safeguards are also required.

• Financial management: The financial aspects of self insurance are based on audit criteria established by statute. The employer must provide information demonstrating the financial state, sufficient to prove that the business is able to meet the required performance criteria for self insurance. This requires evidence of an ongoing ability to meet the financial obligations of self insurance. The employer must have sufficient capital to underwrite, pay and administer claims.

Note: A self insurer’s license will not be granted unless the regulator is satisfied that the employer is fully compliant.

Basic self insurance management

Although self insurance management can look complex at first, it’s based largely on basic common sense business practices. Compliance with statutory requirements is unfamiliar territory for most businesses, and ensuring compliance is absolutely essential for self insurers. Many businesses outsource their administration functions in this area, engaging professional safety consulting advisers to manage these functions.

The best safety consultants also provide the full management spectrum for self insurance.

These services include:
• Compliance management
• Safety consulting
• Safety management systems
• Risk management
• Audit programs

Self insurance is rapidly becoming the preferred option for major employers. If you’re considering self insurance, a professional consultancy will be able to provide useful advice regarding your needs.

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