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Control claim and administrative costs with self-insured groups

Robert Vogel

As an employer, you are faced with a mountain of responsibility. Providing coverage for injured workers is just one of the many things critical to your day-to-day operations.

Employers owning small to large operations have traditionally been limited to guaranteed cost (also known as “first dollar” policies) when choosing workers’ compensation coverage. An often-overlooked option is properly managed self-insured groups.

How do self-insured groups work?

A self-insured group is an association of employers formed as a not-for-profit association specifically for providing statutory workers’ compensation coverage and in some cases employers’ liability coverage. By design, the group benefits its members by controlling claims and administrative costs, limiting accidents by providing enhanced safety services to further control costs. Profits, in the form of dividends, are returned to participating group members who qualify.

SIGs provide a way for employers who can qualify to directly control claim costs while participating in a larger group to share in the cost of claims and related expenses. The “bundled” expenses that are paid with traditional policies, such as premium taxes, residual market fees and commissions do not apply to self-insured groups as they are non-profit. The elimination of these costs can equal long-term stable rates and significant savings to self-insured group members.

These groups are managed by a board of rrustees elected by the membership. The board sets criteria for membership eligibility, the selection of service providers such as the third party administrator for claims (TPA), the purchasing of specific excess/reinsurance, underwriting and distribution of dividends.

Assessments (premiums) paid by the members are used to pay losses, claims expenses, legal, accounting, and actuarial expenses. Groups also purchase excess insurance that protect the group from catastrophic losses.

SIGs are recognized as a valuable alternative to traditional insurance policies as a way for employers who may not be large enough or have the financial ability to self-insure, but still desire to assume more control over their workers’ compensation costs and benefit from the potential savings that a properly managed self-insured group can offer. Keep in mind not all businesses can qualify with the groups such as those that Pro Group manages, as the underwriting is strong to protect its members in these groups.

SIGs are regulated in each state and are allowed to only cover exposures of employers in that state. Group administrators are required to provide information on new members, departing members as well as certified financial statements annually, to ensure the financial health of the group.

SIG success in Nevada

SIGs have been in existence since the 1970s across the country. Some states, with monopolistic workers’ compensation systems, have suffered huge operating losses in their state funds and have ultimately turned to the private carrier and self-insured sector for relief.

Such was the case in Nevada when the Nevada Retail Network Self-Insured Group was formed in 1995 by the Retail Association of Nevada. With the Nevada state fund suffering a multi-billion dollar deficit, business owners relied on Pro Group Management, a self-insured group administrator, for a solution. The group’s objectives were to provide a safer working environment for employees, and aggressive claims control and strict underwriting to lower the cost of workers’ compensation for its members.

As the fourth self-insured group approved in Nevada, NRNSIG began with five members who wanted to leave what they felt was a chaotic commercial market with rates bouncing around every year. Today the group ranks as the largest in Nevada with over 1,300 members statewide and is used as the model nationally. The group succeeded in gaining approval for NRNSIG as part of its advocacy for improving the business environment for business in Nevada. The Retail Association of Nevada is the sponsoring Association for the NRNSIG and is affiliated with national organizations which include the Chain Drug Council, the Grocery Industry Council and others.

NRNSIG’s workers’ compensation loss control process begins with good employee selection practices. Employer Lynx, based in Carson City, is an integral part of this process. It provides pre-employment screening, driving record verification, prior employment verification and prior workers’ compensation claim history.

Safety training, one of the most overlooked parts of business owners’ operations, is provided by in-house safety specialists trained by Pro Group Management. Pro Group Management assists group members with implementation of safe work practices, full safety programs including how to maintain safe work environments, and proper use of personal protective equipment when necessary and much more. Members benefit from fewer operational interruptions and lost productivity due to losses while maintaining compliance with federal, state, and local regulations.

When forming its group, the NRNSIG Board sought a way to aggressively and properly administrate claims. Associated Risk Management Inc. provides third-party workers’ compensation claims administration under a program specifically designed for NRNSIG. Care providers in the occupational health provider network are carefully selected for optimal claims outcomes through timely referrals, and a dedication to appropriate treatment protocol.

The successful attributes of ARMI’s claims management program include:

* Low examiner caseload

* Employment of licensed and experienced hearing representatives

* Real-time remote claims information access

* A proprietary process for expert claim reviews

* State-of-the-art reports and trend analysis

* Face-to-face claim meetings

* Live telephone representatives to insure accurate and immediate communications

* Dedicated subrogation specialists and a litigation manager on staff

* Early return-to-work programs

Since Nevada eliminated its state fund over 15 years ago, the workers’ compensation market in the state has changed dramatically with more than 200 carriers competing for employers’ business. But not all carriers are alike or equal and business owners need to be savvy when selecting their coverage.

Even as the economy is facing unprecedented challenges, NRNSIG continues an impressive growth trend.

So, how has the self-insured group plan worked for its members? From its inception, NRNSIG’s plan has returned more than $8.5 million to its members in the form of payment holidays and dividends. On average, members have realized an estimated savings of over $22 million (25 percent) compared to premiums in the traditional marketplace while receiving robust, focused services at no additional cost.

Fueling economic growth

As America struggles its way out of recession, Nevada works aggressively to attract new businesses to the state. With low corporate taxation and no personal income tax, Nevada is an attractive alternative for employers. The lower stable costs offered by Self-Insured workers’ compensation groups offer additional incentives and benefits to employers considering Nevada in their location or relocation planning. The NRNSIG is one of five SIGs managed by Pro Group. They cover nearly every industry and they are all equally successful.

Is a self-insured group right for my business?

Properly managed SIGs can be an attractive option for employers who qualify looking to gain more control over the costs associated with workers’ compensation coverage. Employers should understand the concept, how the group is administrated, and the financial strength of the group and how this differs from traditional insurance plans. Group self-insurance can be a comprehensive and cost effective means to lower claims costs and control claim expenses associated with workers’ compensation.

For more information on Self Insured Groups and Pro Group go to http://www.pgmnv.com or email to info@pgmnv.com or 800-859-3177.

Robert Vogel, a certified public accountant, is vice president of Pro Group in Carson City. Contact him at 775-887-2480 or through http://www.pgmnv.com.


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