It’s true that group self-insurance plans are
legal under New York State Workers’ Compensation Law. Some
of these entities refer to themselves as multiple employer trusts,
others as association trusts, and still others as self-insured consortiums.
And, on first glance, membership would appear to be an economical
way for an employer to acquire state-mandated Workers’ Compensation
coverage. But, employers – beware! There are, in reality,
multiple drawbacks to self-insured trusts as explained in the chart
below. In joining a trust, a company has not purchased a
policy of insurance. Therefore, it has not transferred its risk
exposure (or its liability for risk) to a legally accountable entity
such as an insurance company.
The following chart offers a clear comparison between
the inherent benefits of membership in a Safety Group versus the
features displayed by self-insured trusts.
| |
Safety Groups |
Self-Insured Trusts |
| COST |
The maximum dollar amount members pay is their
discounted premium. |
The cost is open-ended. There is no limit to a member’s
liability and the Workers’ Compensation Board can levy
assessments to fund any unpaid claims.
|
| LIABILITY |
None |
Joint and several liability, which means every
member of the trust is responsible for every other member’s
claims, and is even liable for the claims of bankrupt members. |
| PROTECTION GUARANTEE |
Unlimited |
If the trust has fiscal problems or becomes insolvent,
there are no government or private mechanisms to protect members.
The employer has the legal burden to pay. |
| SECURITY DEPOSIT |
None |
Varies by trust. Some require the deposit of securities
and/or cash and may require an irrevocable letter of credit. |
POLICY
COVERAGE LIMITS,
PART 1
WORKERS’
COMPENSATION |
Unlimited |
There is no policy and, therefore, no transfer
of liability. |
POLICY
COVERAGE LIMITS,
PART 2
EMPLOYER’S LIABILITY |
Unlimited |
There is no policy so self-insurers must purchase
it on their own. |
| SPECIFIC REINSURANCE WORKERS’ COMPENSATION |
Each Safety Group has its own attachment point
per claim. Coverage is unlimited beyond the attachment. |
Each trust has its own attachment point per claim.
Coverage may be limited above the attachment point. |
| AGGREGATE REINSURANCE WORKERS’ COMPENSATION |
There is no need for Aggregate Insurance since
Group members cannot be charged anything more than their own
discounted premium. |
Varies by trust. Trusts are not legally required
to purchase Aggregate Insurance. |
| SPECIFIC REINSURANCE EMPLOYER’S LIABILITY |
Each Safety Group has its own attachment point
per claim. Coverage beyond the attachment point is unlimited.
|
Each trust has its own attachment point per claim.
However, coverage is typically limited. |
| AGGREGATE REINSURANCE EMPLOYER’S LIABILITY |
There is no need for Aggregate Insurance since
Group members cannot be charged anything more than their own
discounted premium. |
Varies by trust. Trusts are not legally required
to purchase Aggregate Reinsurance coverage. |
| LOSS ADJUSTMENT EXPENSES |
Incorporated into Group Expense Charge. |
Billed to claims file. |
| HISTORICAL PERSPECTIVE |
Lovell’s Safety Groups demonstrate longevity:
its oldest Group was established in 1923, and the most recent,
in 1990. |
Trusts have radically variable track records.
The majority of trusts were formed less than a decade ago, while
several older ones have had serious problems with underfunding. |
| GOVERNMENTAL OVERSIGHT |
All Safety Groups abide by stringent regulations
and oversight enforced by the New York State Insurance Department. |
Trusts submit to minimal supervision, and what
exists is performed by several employees at the Workers’
Compensation Board. Most states regulate trusts far more aggressively
than New York, mindful of the disastrous situations in Florida
and Illinois. In a number of states, trusts are actually illegal. |
