When it comes to workers' compensation, many small businesses are working in the dark. This is particularly true when they're thinking about joining or leaving a self-insured group (SIG), a new poll shows. They see the upside, but often overlook the downsides that have the potential to put them out of business.
The majority of small businesses (73 percent) report that they have little or no knowledge on how SIGs work, according to a recent survey of 501 owners or managers of small businesses with 1 to 99 employees. The study was commissioned by Employer, a small business insurance specialist.
Four out of 10 small business decision-makers incorrectly believe that SIG members are not financially responsible for claims from the group’s other member companies, according to the survey. This lack of SIG knowledge is not limited to the general small business population.
Thirty-nine percent of small businesses who are currently or once were part of a SIG incorrectly believe SIG members are not financially responsible for the workers' compensation claims of each of the other companies in their SIG, not just their own businesses. And a quarter incorrectly believes that their claim liability ends when they leave a SIG.
This is a time of continued financial challenges for some large SIGs and their members around the country, Employer said. In California, a workers’ compensation SIG for restaurants, golf courses and country clubs recently announced a $42 million assessment on its member businesses to make up for the group’s insufficient reserves. The assessment means costs of tens of thousands of dollars or more to the member companies, including many that are former members.
And recently a health care industry SIG also announced an assessment to its members, which was necessary to comply with California financial standards and to shore up a $25 million reserve deficit.
Employer said that are nine questions businesses should ask if they are already members of or are considering leaving a SIG.
Nine Questions Businesses Should Ask Their Self-Insured Group Administrator:
- How well funded is the self-insured group?
- How many claims have occurred while my company has been a member?
- What is the expected lifetime cost of each of these claims?
- What does “joint and several liability” mean to my business?
- What is my company’s exposure if another member of the self-insured group has a claim?
- Can a claimant sue my company for the full cost of a claim?
- What liabilities does my company have if I leave the self-insured group?
- What are the legal requirements of leaving a self-insured group?
- Will I need to reinsure any costs related to claims that occurred while I was part of the self-insured group?