Report on Self Insurance Groups
Despite the name ―self insurance,‖ individual or stand-alone self insurance is not insurance; it is self-funding. When there is no transfer of risk in exchange for payment of consideration, there is no insurance. A ―self-insured‖ employer is one that is permitted to retain its own risk upon a showing that it has the financial capacity to make good on its potential liabilities. The workers’ compensation liabilities of a self-insured employer are paid by the employer out of its ongoing revenue or other available funds.
Group self insurance is different from individual self insurance because group members are not required to demonstrate their financial capacity individually or to pay their individual liabilities. The group as a whole must have the financial capacity to make good on the members’ liabilities. It is the solvency of the group, like the solvency of an insurance carrier, which secures the payment of compensation on behalf of the employers covered by the group.
The workers’ compensation liabilities of a member of a SIG are ordinarily paid by the SIG out of funds collected in advance from the members. In a SIG, there is a transfer of primary liability
from the member to the SIG in exchange for the member’s payment of a fee. Whether that fee is called
contribution‖ as in group self insurance, it
nevertheless consideration paid by the member
or is in
exchange for the SIG’s acceptance of the risk of workers’ compensation liabilities.
Unlike conventional insurance, an employer in a SIG may be assessed for additional funds if the assets of the SIG are insufficient to fund the payment of all of the liabilities assumed by the SIG. Any member can be required to cover the unpaid assessments of the others. Surplus funds may be returned to the members. Despite the overlay of these other provisions – joint and several liability, the potential for assessments for deficits, the potential for return of excess funds, the
“The insurance industry sells a unique and important product that is vital to world commerce and individual security. That product is a promise to pay all or part of the costs associated with some future event. The promise is based upon the payment of premiums by a policyholder in advance of the event that triggers an insurer’s promise to pay.”
Failed Promises; Insurance Company Insolvencies, A Report by the Subcommittee on Oversight and Investigations of the Committee on Energy and Commerce, U.S. House of Representatives, John D. Dingell, Chairman, Washington, D.C., 1990.
ultimate recourse to joint and several liability for other members’ liabilities – the fundamental characteristic of group self insurance is an insurance transaction.
The Role of the Regulator
Because group self insurance has the
group self insurance.
insurance must address The states that permit
essential characteristic of insurance, the state’s oversight of the same problems as state’s oversight of conventional group self insurance have chosen varied approaches to