Which term best describes a financing method where the employer funds its own losses rather than paying a premium to an insurer?

Which term best describes a financing method where the employer funds its own losses rather than paying a premium to an insurer?

• A. Guaranteed cost
• B. Large deductible program
• C. Self-insurance
• D. Assigned risk/residual market

Answer: (C)

Self-insurance means the employer bears and funds its own workers’ compensation losses rather than paying a fixed premium to an insurer. In practice, the employer sets aside money in a claim reserve or trust and may use a third-party administrator to handle and pay claims. They can add stop-loss reinsurance to cap the potential for very large losses, but the financial responsibility for losses up to the funded amount rests with the employer. This approach often suits larger or financially stronger employers who want more control and potential cost savings, though it requires solid claims management and reserves. The other options describe traditional premium-based financing (guaranteed-cost), a plan where the employer pays losses up to a deductible while the insurer covers the rest (large deductible), or a market mechanism for high-risk employers to obtain coverage (assigned risk/residual market).

Self-insurance means the employer bears and funds its own workers’ compensation losses rather than paying a fixed premium to an insurer. In practice, the employer sets aside money in a claim reserve or trust and may use a third-party administrator to handle and pay claims. They can add stop-loss reinsurance to cap the potential for very large losses, but the financial responsibility for losses up to the funded amount rests with the employer. This approach often suits larger or financially stronger employers who want more control and potential cost savings, though it requires solid claims management and reserves. The other options describe traditional premium-based financing (guaranteed-cost), a plan where the employer pays losses up to a deductible while the insurer covers the rest (large deductible), or a market mechanism for high-risk employers to obtain coverage (assigned risk/residual market).