We often work with employers who have become members of an association or other type of self insured workers compensation fund, have a problem and don’t understand why they are being charged additional premium. I’ll shed a little light in this post about some of the problems associated with these group self insured programs.
Securing workers comp coverage through a self insured fund is different than buying coverage from an insurance company. Buy coverage from an insurance company, cancel the coverage and just walk away. It’s not that easy with a fund. Employers may be enticed by the promise of lower rates and better claim handling that’s designed for participating employers in their association but there are trade offs!
Self insurance is an optional method of providing workers compensation coverage as outlined within most state statutes. You’ll find statutes guide the formation and typically provide the governance authority to a specific state agency who oversees the operation of self insureds. It’s the statutes that allow pooling arrangements of self insureds and association programs. So, many times when a smaller employer signs up, as a member, to have workers compensation coverage provided through their association, they are actually joining a self insured fund.
Self insured funds are governed by the by laws, rules and regulations established by their board of directors, as allowed by statute and governing authority, usually the states industrial commission, department of workers comp or department of insurance. When an employer signs up for coverage through their association’s self insured fund they will sign and agree to all the provisions of the funds participation agreement and it’s this agreement that must be read very carefully to avoid costly mistakes.
A typical participation agreement will include:
- Definitions – Outlining the Board of Trustees of the fund, Claim service providers and other items
- Term of Agreement – While coverage may begin when the employer signs up, the fund will typically have a specific operating period, most running annually from January 1 to December 31. The employers short term policy will then be coordinated with the funds renewal dates.
- Contributions – How much the employer pays into the fund and how. Here you’ll find information about the initial contribution required for the employer to join the fund and subsequent payments or contributions.
- Assessments – Funds get their money to operate from their members, each individual employer. You will always find somewhere within the participation agreement a statement that the employer agrees to pay any additional contributions or assessments which may be required by the Fund trustees in order to make sure the Fund has enough money on hand to meet it’s obligations. Yes you heard that right…an employer may have to pay more into the Fund.
- Claims – How they are to be reported and restrictions of settlement by the employer.
- Withdrawal of Employer from the Fund – Funds have specific rules that deal with how an employer may leave the fund. Some can be very restrictive and by just leaving the fund an employer may not remove any obligation for liabilities they incurred during the time they participated in the fund.
- Audits and Payroll Information – Not unlike a normal workers comp insurance policy, funds will require the employer to submit to audits and provide payroll records.
- Uninsured Subcontractors – Some funds, those associated with or serving builders or other construction related employers, will many times find a specific item that relates to the use of uninsured subcontractors. Pay close attention to sections of the participation agreement that deals with these types of topics. They are there for a reason and that reason is that it deviates away from the normal. So read these sections very closely to learn how your actions may impact on your contributions into the fund.
- Venue and Jurisdiction – The agreement will typically dictate the venue of any court proceedings and the jurisdiction of coverage. Association funds may restrict coverage to a specific state so make sure you know how having employees working in other states may apply to your situation.
Self insured association funds can provide a good resource for many employers seeking workers compensation coverage for their business. Some of the problems associated with these funds and some things to watch out for include:
- Self Insured Fund Participation Agreement – Read the participation agreement and make sure you understand each item and it’s impact on you as a member.
- Restrictive Elements – Watch for restrictive or out of the normal items found in the participation agreement. These may include how they handle uninsured subcontractors and how coverage may or may not apply in other states.
- Assessment – Make sure you understand the potential for additional payments into the fund that you will be responsible to make. Unlike an insurance policy, self insured funds remain solvent because of their members participation. There must be enough money to keep the fund in business not to mention the funding requirements determined by the state. So watch out for the potential of being assessed additional contributions.
- Withdrawal – Be sure you understand how you can get out of the fund. Understand what your responsibilities are after you have withdrawn from the fund.
Of course there’s more but this should get you started!
Hope this helps you out! Thanks!
