Self-insurance involves an organisation setting aside funds to manage its own potential financial risks such as workers’ compensation claims, rather than paying premiums to and relying on a third party insurance company or a WorkCover Agent for the case management.
As workers’ compensation premiums can be a significant concern for Australian businesses, self-insurance is one option for larger employers to consider. Although it is a complicated topic, it’s something well worth considering, particularly for an employer with over 500 staff.
Self-Insurance Advantages
- Improved Insurance Plan
Self-insurance plans are tailored to suit the individual company requirements, perhaps providing coverage that third party insurers might be unable to offer. Furthermore, as a self-insured company is paying its own losses, claims are likely to be resolved effectively without disruption to the business.
- Improved Accountability & Safety
Self-insurance has the added benefit of providing strong incentives to control workers’ compensation losses through disciplined safety management and injury prevention practices, as well as rehabilitation performance. These are required in order to meet the necessary standards to be licenced as a self-insurer, and significantly improve workforce productivity. Organisations opting to self-insure will emphasise workplace health and safety and accountability, as the exposure to risk creates a stronger commitment to workplace health and safety and loss prevention. An ongoing commitment to workplace health and safety can significantly improve morale and workforce productivity. However, as workplace loss and safety programs take time to be implemented, benefits of doing so are considered long term.
- Improved Finance
Self-insurance can give employers far greater control over their funds, improving cost consistency, and provide greater financial control of downstream services. Under conventional or underwritten policies employers pay premiums before any claims are made. However, with self-insurance plans no money is paid until a claim occurs. Self-insurance reduces claims and premium expenses and costs factored into third party claims administration including policy overheads, assumption of risk and underwriting profit. As the self-insured company pays its own claims, claims can be settled and reduce financial loss to business earnings. Improved accountability also improves finances as fewer funds should be used with less claims.
Outsourcing to Gallagher Bassett
There are also benefits to outsourcing claims to a third party insurer, like Gallagher Bassett. Although an insourced model could mean business and self-insurance objectives are aligned, outsourcing typically delivers superior financial performance.
GB global trends show that within 18 months of TPA outsourcing the typical book experiences:
- 26% reduction in cost of program
- 54% reduction in cost < 26 Week Medical Expensive Only Claims
- 72% reduction in cost of < 26 week Loss Time Injury Only Claims
- 50% reduction in cost of Tail Claims
- Reduction in duration of Loss Time Injury claims by at least 25%
- Increase in claims closure by at least 25%
- Reduction in overall claim costs of 25-50%
The cumulative impact of these improvements is typically millions of dollars in savings to a client’s liability over a three year period. Other benefits include:
- Reduced people costs and administrative burden, without the need to manage recruitment, absences, paperwork, etc. and keep manuals and paperwork up to date with legislative changes.
- Improved staff satisfaction by appointing an independent third party to manage claims decisions and communicate with workers.
- Access to innovations and improvements by outsourcing to a specialist who invest significantly in claims management improvements.
We typically recommend a hybrid model with an outsourced claims service that allows clients to maximise the financial benefits of self-insurance with reduced administrative burden, but with a high degree of account management to ensure total alignment of business objectives and self-insurance objectives, and afford a high degree of control over the portfolio.
GB is accredited to administer claims in all state jurisdictions and territories across Australia, including Comcare (SRC Act) and has an unrivalled consistent record of excellent claims and audit outcomes.
GB has a proven track record of achieving exceptional results for clients, with:
- Average days lost reduced by 50% within one year after transitioning a Comcare licensee
- Average days to determine reduced from 157 days to 10 for one Comcare licensee
- Technology costs reduce by 80% for one Comcare licensee
- Achieved finalised claims costs 57% better than industry average for a client in a high-risk industry
- High rates of return to pre-injury role—92% for one employer
- A reduction in one client’s significant long-term claim segment from 546 claims to 96 claims over three years, achieving an estimated saving of AUD $5 million
- A transformation project, which achieved an estimated actuarial saving in excess of AUD $50 million through new claims strategies/goals and enhanced communication with key stakeholders and claimants
- A consistent 95% compliance or better in claims management audits by the regulator
If you are interested in more information as to if self- insurance is beneficial to your business, GB offers a range of self-insurance solutions across the workers compensation industry. If you would like more information please do not hesitate to contact us.