Small Firms Save In Self-insurance Pools

 

An increasing number of states now allow small businesses to group together to fund worker's compensation coverage, instead of purchasing individual worker's comp insurance policies.

Illinois is one of the latest to pass a law that permits two or more companies to self-insure for compensation coverage by pooling their resources under an umbrella association. "Large companies have had the option since the 1930s to self-insure for worker's comp in our state," says Dan Csar, an insurance analyst for Illinois's Department of Insurance, "but pooling makes self-insuring possible for much smaller employers."

Under the state's law, the companies and associations may be any size, as long as the combined payroll of the pool is at least $10 million. Pools file with the state's Department of Insurance, but each is run by a separate, appointed administrator. Each pool is also required to provide excess insurance and bonds, should a compensation claim exceed a pool's funds. All state pools are tied to an assessment provision that covers the loss should one group go bankrupt.

Since July 1981, three pools have been operating in the state and Csar expects at least six more to be under way sometime early this year.

Norman Light, the general counsel for Illinois's first pool, the Chicago-Midwest Meat Assn., says the plan has worked well so far. The pool has 50 members. "Small companies can save on private insurance premiums," Light says, "and they have better control over settlement and claims procedures. What's more, the pools' funds are invested for the companies' gain, rather than for a big insurance company's benefit."

In Florida, where a similar law has been in effect for almost 30 years, there are now around 25 such pools. "Aside from the direct savings from self-insuring," says Joseph Mastrovito, chief of the state's Bureau of Self-Insurance, "many small companies earn rebates from the pool if they have good safety records." On an average pool premium of $15,000, association members have earned rebates of up to 40%, he says.

According to the National Council of Self-Insurers in New York, the following states and the District of Columbia have laws allowing small companies to pool: Alabama, Arkansas, Delaware, Florida, Georgia, Illinois, Iowa, Kentucky, Louisiana, Maine, Maryland, Michigan, New Hampshire, New York, North Carolina, South Carolina, South Dakota, Tennessee, and Virginia.