Workers’ compensation premiums can be a significant concern for Australian businesses, especially where unbudgeted developments occur.
One option for larger employers is to consider self-managing their workers’ compensation (“self-insurance”), which can improve cost consistency, and provide greater financial control of downstream services.
Self-insurance is the term used to describe the business strategy whereby a company applies for a license to manage its own losses for workers’ compensation claims, as an alternative to paying premiums to a WorkCover Agent or insurer.
In doing so, the company chooses to pay its own losses arising from those risks. If there is a claim made as a result of an accident, that company also accepts responsibility for claims management which can be done internally or outsourced to a third party such as Gallagher Bassett.
Generally speaking, the company will fund the cost of any claims from either its working capital, general savings or from a specifically established and managed funding reserve.
As an individual, you probably already 'self-insure' without actually realising it.
Did you turn down that extended warranty offered when you last bought an electrical product or did you choose to pick a larger than standard excess on your motor policy this year?
By choosing to run the risk that the electrical item would not break down just after the manufacturer's guarantee period or by extending your vehicle excess to reduce the premium because you believe you are a safe driver, you have consciously made the decision either not to take (or to take reduced) insurance cover and to carry some of the risk personally.
The concept is very similar for businesses.
It is quite unusual for organisations to completely self-insure; in other words to carry 100% of the risk themselves. Even those companies with a strong appetite for risk, and a healthy balance sheet, must have some Excess of Loss reinsurance.
Excess of Loss is reinsurance covering the insurance company against losses larger than a certain amount (called a ‘Self Insured Retention’ or SIR). It is also a ‘must have’ as part of any self-insurance program in Australia.
GB acts as claims administrator for a major corporation that self-insures in one class of business up to $1,000,000. Any claim that arises below this sum comes out of their own funds; but of course they do not pay premiums to an insurance company for claims under this amount, choosing to invest the money saved to create a funding reserve.
Whichever class of business an organisation chooses to self-insure, it is critical to capture the details of incidents arising and of claims being made. Those incidents and claims need managing and whilst some organisations set up internal departments to handle these, others engage the services of specialist TPAs to manage their program.
GB offers a range of Self Insurance solutions across all classes of insurance.If you would like more information on how self insured options operate or you have a self insured program that you think Gallagher Bassett can assist with please do not hesitate to contact us.
