Who likes insurance, really? Insurance is a product that someone is usually mandating you purchase, be it the State, a Lendor, Landlord, or significant other. To make matters worse, the only way you will derive any value from this “forced purchase”, is to suffer a loss of some sort. It is no wonder that no one likes insurance, and no surprise that you may be contemplating self-insuring one or more risks for your business.
For many entities, the first exposure that makes sense to consider self-insuring is Workers Compensation. Large companies have more predictable claims experience and can spread risk more effectively, making self-insurance financially viable. Companies with a strong safety culture and healthy workforce want to benefit from their lower claim costs more directly, and capture more of the savings as compared to traditional insurance premiums.
Pros vs. Cons of Self-Insurance vs. Traditional Workers’ Compensation in Indiana
| Feature | Self-Insurance | Traditional Insurance |
| Cost | Potentially lower costs if claims experience is favorable | Fixed premiums, predictable costs |
| Control | Greater control over claims administration and medical management | Insurer controls claims administration and medical decisions |
| Flexibility | Can tailor plan design to specific needs | Limited flexibility in plan design |
| Risk | Company assumes financial risk of claims | Insurer assumes financial risk of claims |
| Administrative Burden | Requires significant administrative resources | Insurer handles administrative tasks |
| Financial Requirements | Strong financial position required | No specific financial requirements |
Step-by-Step Process and Requirements for Becoming a Self-Insured Employer for Workers’ Compensation in Indiana
1. Determine Eligibility:
- Financial Strength: You must maintain a strong financial position to demonstrate the ability to pay workers’ compensation claims. The Indiana Workers’ Compensation Board (WCB) considers factors like net worth, current liabilities, and past profitability.
- Safety Record: You must have a good safety record, demonstrating a commitment to workplace safety and accident prevention. The WCB reviews your historical accident data and safety programs.
2. Submit Application and Supporting Documents:
- Application: Complete the self-insurance application form (WCE-2) available on the WCB website.
- Financial Statements: Provide audited financial statements for the past 5 years.
- Projected Loss Experience: Submit a projected loss experience report prepared by a qualified actuary.
- Safety Programs: Describe your existing safety programs and their effectiveness.
- Excess Insurance: Specific and aggregate excess insurance, with acceptable policy limits and retention amounts, may be required in each self-insured program as a condition of approval. A current SI-3 (Certificate of Excess Insurance) must be on file with the Board at all times.
- Surety Bond: Obtain a surety bond or other approved security deposit shall be required as part of a self-insured program in a minimum amount of Five Hundred Thousand Dollars ($500,000.00).
- Subsidiary Information: If applicable, submit information on any subsidiaries.
- Parental Indemnity Agreement: If applicable, submit a Form SI-4 parental indemnity agreement for wholly-owned or majority subsidiaries.
- If you are specifically involved in the trucking industry, it is necessary to complete the Form SI-7 (Truckers Supplemental Application).
3. Application Review and Approval:
- The WCB will review your application and supporting documents for completeness and adequacy.
- They may request additional information or clarification.
- A WCB representative may conduct an on-site visit to assess your safety program and financial resources.
- The final decision on your application rests with the WCB Board of Directors.
4. Ongoing Requirements:
- Continue to demonstrate financial strength and secure excess insurance.
- Promptly report all worker injuries and fatalities to the WCB.
- Comply with all Indiana workers’ compensation laws and promptly pay benefits to injured workers.
- Submit an annual financial statement and loss report to the WCB.
- Maintain Safety Programs: Continuously review and update your safety programs to prevent workplace accidents.
Ultimately, the decision between self-insurance and traditional insurance depends on a company’s specific circumstances, risk tolerance, and financial resources. Directly comparing the costs of self-insurance vs. traditional insurance is further complicated due to the variability in factors like claims experience and company size. However, studies suggest that self-insurance can be more cost-effective for companies with low claims frequency, low claims severity, and/or predictable claims experience. Contact us to learn more about analyzing your traditional workers compensation insurance program versus your options to become a qualified self-insurer in Indiana and/or the other states you operate.
Additional Resources:
- Indiana Workers’ Compensation Board (WCB): https://www.in.gov/wcb/
- Self-Insurance Forms: https://www.in.gov/wcb/attorneys/self-insurance-forms/
- Self-Insurance Guidelines: https://www.in.gov/wcb/files/2023-SIGuide.pdf
- WCE-2 Application Form: https://forms.in.gov/Download.aspx?id=15426
About Henriott Group
Henriott is an independent Risk Management firm dedicated to helping clients prevent, manage, and recover from critical incidents. Working in both public and private entities through effective risk management, risk financing, commercial insurance, employee benefits, human resources, crisis management, contingency planning, and crisis response.
CONTACT
Zach Finn, Risk Management (765) 429-5001 | zfinn@henriott.com
Grace Pritchett, Communications (765) 838-8610 | gpritchett@henriott.com
