January 2010

Self-Insurance: A Good Option for Missouri Employers, Employees

Since 1936, Missouri employers have been able to self-insure their workers’ compensation liability as an alternative to purchasing an insurance policy. Qualified employers/applicants are granted authority by the Missouri Labor Department’s Division of Workers’ Compensation’s (DWC) Insurance Unit. Self-insured employers are then monitored by the DWC and must comply with all statutes and regulations to retain their self-insurance authority. Currently, approximately one third of the market in Missouri is self-insured with 303 individual employers self-insuring, and nearly 3,000 other employers belonging to group trusts. 

The effects of the economic recession are being recognized in the self-insurance community of late.  In 2009, 15 individual self-insurers filed Chapter 11 bankruptcy. These are the first filings in nearly half a decade.  In the event an employer files bankruptcy, the employer and injured employees rely on the security held by the Division to fund any future workers’ compensation claims. When the security is not sufficient to cover all liabilities, injured employees experience significant delays in receiving the compensation to which they are entitled under the workers’ compensation law. Thus, it is paramount that self-insured employers comply with the laws designed to prevent such shortfalls.

In 1992, lawmakers recognized the risks posed when an individually self-insured employer is unable to cover outstanding liabilities upon bankruptcy, and House Bill 975 was passed, creating the Missouri Private Sector Individual Self-Insurers Guaranty Corporation. This non-profit corporation is responsible for establishing programs and taking action to prevent member insolvency. All authorized private sector individual self-insurers in the state are required to be members of the corporation as a condition of their self-insurance authority, and as such, remit assessments to the “insolvency fund” managed by the corporation. This fund is then used to compensate injured employees when a member is unable to meet its obligations, such as in a bankruptcy.

The DWC has recognized the increasing risk of injured employees not receiving their workers’ compensation benefits due to the large number of bankruptcies, and is working diligently to more closely monitor the compliance and financial stability of current and former self-insurers. With annual assessments that fund the insolvency fund capped at one-sixth of one percent of the annual modified standard premium, the potential for exhausting the fund is very real.  The DWC believes that its increased scrutiny will minimize the use of the insolvency fund by ensuring adequate security is posted at all times.

The self-insurance option is important to Missouri employers and recent research suggests it is important to employees as well. Research conducted on employers in 46 states showed that states with higher percentages of self-insured employers had lower injury incidence rates than those states with lower percentages of self-insured employers. Self-insured employers have a higher economic incentive to invest in prevention, as they bear the full costs of workers’ compensation benefits compared to insured firms who only pay premiums, which may or may not be linked to their injury experience. Thus self-insurance is good not only for employers but also for workers and the DWC is committed to keeping this option available for Missouri businesses.