Alternative Risk Financing for Workers Compensation

By Granahan, William L. | Journal of Property Management, January-February 1990 | Go to article overview

Alternative Risk Financing for Workers Compensation


Granahan, William L., Journal of Property Management


Alternative risk financing for workers compensation A number of alternatives to the standard workers compensation policy and financing method have been appearing in the marketplace over the last few years. The cost of providing workers compensation benefits to employees has become a burden that employers are no longer able to bear without that cost threatening the survival of the very organization itself.

At a time when many medium-to-large companies are operating on razorthin profit margins, the cost for workers compensation benefits cannot always be passed on to the customers. As a result, a number of innovative financing methods have been developed. Four of the most prominent methods include: self-insured pools, captive insurance companies, promissory note arrangements, and integrated employee benefits/workers compensation plans.

While the reasons for developing and using these alternative plans are essentially driven by cost, simply devising a new plan will not solve this problem. The cost of workers compensation benefits is attached not only to higher medical costs and employee wages, but also to the increasing number of accidents, in both severity and frequency, that happen in the workplace.

Methods of loss reduction are a real key to providing innovative financing methods. Each of the alternative financing methods mentioned above should integrate complete loss control and claims-handling strategy in order to contain and reduce the costs.

Self-insured groups

Legislation has been passed in most states which allows employers to gather together to form self-insured workers compensation programs with a modicum of regulation. Previously, these pools would have been termed insurance companies and become subject to heavy regulation and administrative costs that are typical of the insurance industry but are unnecessary in the smaller pools.

Many mid-size employers would like to be self-insured and are capable of handling it, yet are too small to bear the significant budget swings that occur in self-insurance. It is these employers who benefit the most from self-insured pools.

A pool is formed by a multiple of employers who share common interests, an association membership, or the same industry background. These businesses essentially "pool" their insurance premiums and losses.

The pool itself secures reinsurance, with support services such as loss control and claims handling being provided by an insurance company or a third-party administrator. Legal representation for claims defense could be handled by a law firm chosen by the client or provided by the administrator or insurance company.

Some benefits of such self-insurance include:

* The members purchase reinsurance and administrative services at a volume discount.

* The individual retention in the event of significant losses is less than if individually insured.

* The members are not assessed the residual market charges applied against insurance companies.

Some drawbacks to membership in a pool include:

* The individual employer is jointly and severally liable for the losses of the group.

* The individual's favorable loss experience may be outweighed by the poor loss experience of other members of the group.

* The loss experience of the group may eliminate the cost savings.

Properly structured pools, however, would include careful underwriting of individual risks, both at initial application and upon renewal. It would include securing a solid reinsurance carrier as well as superb loss control and claims management.

Captive insurance companies

Although captive insurance companies have been historically used in areas other than workers compensation, the use of a captive insurance company can be an excellent and less expensive answer to their company problems as well when employers in more than a handful of states wish to pool their premiums.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Alternative Risk Financing for Workers Compensation
Settings

Settings

Typeface
Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.