Fifteen years ago, about 30 workers' compensation self-insurance pools offered member companies an alternative to the standard policies provided by commercial insurance carriers. Today, the number of such pools has risen to around 600, as more and more managers attempt to cut down on escalating insurance premiums.
David R. LaFar III, president of a $20-million, 450-employee textile manufacturer in Gastonia, N.C., belongs to the American Yarn Spinners Self Insurers Fund, started in January 1984. Each year, LaFar Industries Inc. and about 30 other privately held yarn spinners pay premiums based on workers' comp rates that are issued by the state where the company is based. That money is then invested, usually in government securities, until it is actually needed to pay out claims or related expenses. The $2-million fund is owned by the members themselves, and is overseen by a board of trustees that makes all decisions regarding the fund's operation, including, for example, when to pay dividends or give volume discounts.
LaFar's premiums his year totaled $60,000 -- about as much as a third-party insurer would have charged. But because of a good safety record during its first year of operation, the fund saved more than 50% of the premiums -- money that will be returned to member companies in the form of dividends and/or lower premium payments.
Wilbur Doyle, the chairman of $15-million Doyle Lumber Co., in Martinsville, Va., and a member of the Southeastern Lumber Manufacturers Association fund, expects that 15% of this year's premiums will be returned to him up front. Over the past 15 years, the $7-million workers' comp pool has paid back around $1 million a year to its nearly 175 participating companies. "It has given us a tremendous advantage," Doyle says.
Most funds are set up by trade associations and administered by outside companies. Hewitt, Coleman & Associates Inc. in Greenville, S.C., charges 11% of the premiums as its fee for administering the yarn-spinners fund. In addition to processing claims, collecting premiums, and marketing the product, Hewitt, Coleman also buys excess, or catastrophic, insurance for the group, and provides loss-control programs designed to improve member companies' safety records -- a key element of any fund, says E. J. Kaminski, senior vice-president at Hewitt, Coleman.
Workers' compensation self-insuring funds generally make sense for any labor-intensive industry. Funds already exist for a group of North Carolina health care facilities, many state municipal leagues, and an Oklahoma restaurant association, among others. As LaFar says, "Any large corporation can self-insure on its own and realize the same benefits. But for smaller companies, when it comes to insurance, there is safety in numbers."