Self-insurance: An overview

30 April 2018

Drive for self-insurance

In 2015, the functions of WorkCover NSW were split into three organisations – SafeWork NSW, the State Insurance Regulatory Authority (SIRA) and Insurance & Care NSW (iCare); premiums are shared between the Authorised Insurers being CGU, Alliance, GIO, QBE and EML.

However, as of 1 January 2018, EML will become the sole insurer for NSW; premiums will be handled by iCare. Without competition, it is likely that EML’s service levels will decline.

Widespread concern regarding these changes has sparked nationwide debate and a drive towards self-insurance.

Meaning of self-insurance

‘Self-insurance’ is the term used to describe a business strategy, whereby a company applies for a license to manage its own losses for workers compensation claims as an alternative to paying premiums to a WorkCover Agent or Authorised Insurer.

Licenses may be granted on a single or group basis; a group license will be issued to a holding company and all wholly-owned subsidiaries of the company in a particular state or territory.

As the cost of any claims will be funded by the employer – whether from working capital, savings, or an established and managed funding reserve – most choose to remain partially insured by an Authorised Insurer.

Benefits of self-insurance

For employers

Because self-insured employers pay costs as they are incurred, they are not subject to premium increases as set by the Authorised Insurer. Employers are then able to predict and control their liabilities and workers compensation expenses; this in turn improves cash flow management across the business.

Following a worker’s injury, the employer will run its own claims and injury management scheme, providing greater control of downstream services and expenses. Without the involvement of an Authorised Insurer this process is generally more efficient, resulting in shorter claim duration and thus lower expenses for the employer.

Finally, self-insurance often produces better return to work and rehabilitation outcomes for both injured workers and the employer – improving safety culture, and reducing the likelihood of injury.

For workers

Claims are more promptly and efficiently addressed by employers than by Authorised Insurers due to their practical knowledge of the role and business, and existing personal relationship with the injured worker.

By dealing directly with their employer – and removing involvement in complex discussions between Human Resources, managers, claims managers and insurance company representatives – worker tension is reduced and attention can be refocused onto their safe return to work.

Barriers to self-insurance

Self-insurance is reserved for large employers; each state and territory has its own minimum employee threshold. Furthermore, the application fees set by each state and territory can be oppressive.

For national employers, the process can be particularly expensive and complex due to the multiple health and safety and workers compensation statues across Australia. However, the Safety, Rehabilitation and Compensation Legislation Amendment Bill 2014 (currently lapsed) may eventually provide access to the jurisdiction for national employers.

Effective navigation

Hentys Lawyers specialises in workers compensation law and claims management, and can assess your business to determine whether self-insurance is a feasible option.

We are equipped to design, implement and lodge an application for your self-insurance scheme – including preparation of the required risk management practices, business plan reporting, claims data reporting and financial reporting.

Once established, Hentys Lawyers is able to run the claims management and human resources processes to cost effectively and compliantly run your self-insured workers compensation scheme.