Understanding Self-insured vs Fully-insured Workers’ Compensation Coverage

November 15, 2018 | Juli Jenkins, SCLA

Juli Jenkins, SCLA; Client Service Executive; LMC Insurance and Risk Management

When selecting workers’ compensation coverage, employers have several options. Employers may choose to be fully-insured, have a self-funded plan or they may participate in a self-insured group.

Fully-insured workers’ compensation

Under a fully-insured plan, the employer pays a premium to an insurance carrier. In exchange, the insurance carrier assumes the financial and legal risks, paying all claim-related expenses. The benefits of this type of arrangement include:

  • Less risk because the insurance company handles the claims
  • The administrative costs are covered in the premium
  • Works best for smaller employers that do not have the resources needed to administer their own insurance plan

Self-insured workers’ compensation

In a self-insured workers' compensation plan (also called a self-funded plan), the employer assumes the financial risk of providing workers’ compensation benefits to its employees. Instead of paying a premium to an insurance company or state-sponsored workers’ compensation fund, a self-insured employer pays each claim out of pocket as they are incurred. The benefits of this type of arrangement include:

  • The potential for cost savings
  • Improved loss experience
  • A safer workplace
  • Faster loss settlements

Self-insured group

For employers that don’t have the size or financial capacity to self-insure on their own, but want to have some control over their workers’ compensation costs and benefit from the cost-savings self-insurance provides, a self-insured group (SIG) may be an option. With a self-insured group, sometimes referred to as a fund or trust, employers contribute to a pool used to cover the group’s workers’ compensation claim costs and expenses. If the funds in the pool fall short of actual costs, members could be assessed to cover the additional amount. The benefits of this type of arrangement include:

  • Greater control over losses and claims
  • Aggressive claims management
  • Potential for dividends if the fund does better than expected

Not every employer can self-insure

A small number of states do not permit employers to operate self-insured plans. In states that do, employers must be approved by the applicable regulatory agency in order to operate a self-insured workers' compensation plan. To be approved, employers must meet certain solvency standards and provide appropriate actuarial reports.

Understand the risk

Employers should carefully weigh the differences among self-insured, self-insured group and full-insured workers’ compensation insurance. Because a self-insured employer assumes the risk of paying the workers' compensation claim costs for its employees, it must have the financial resources to meet this obligation. Further, when considering a self-insured group, employers need to understand how the program works, the financial strength of the group and how the group is managed.

Every company has different needs and goals. Finding the right plan requires an in-depth conversation with an experienced advisor who can help you understand your options and help you determine which one best suits your needs.


Juli Jenkins is a client service executive at LMC Insurance and Risk Management in West Des Moines. Contact her via email at juli.jenkins@lmcins.com.