Which term describes a financing method in which the employer self-funds losses and may employ a formal structure to handle those claims?

Which term describes a financing method in which the employer self-funds losses and may employ a formal structure to handle those claims?

• A. Small deductible program
• B. Retrospective rating plan
• C. Self-insurance
• D. Assigned risk/residual market

Answer: (C)

Self-insurance means the employer carries the cost of workers’ compensation losses themselves rather than paying premiums to an insurer. The employer may set aside reserves and use a formal structure to handle claims, such as a third-party administrator, a trust, or a captive, and can add stop-loss protection to limit catastrophic loss. This approach is typical for larger employers who have the financial resources to fund ongoing claims. In contrast, a small deductible program still relies on insurer coverage with only a deductible paid by the employer; retrospective rating involves adjusting premiums after the period based on actual losses but remains an insurance arrangement; and the assigned risk/residual market is a state pool for employers who cannot obtain coverage.

Self-insurance means the employer carries the cost of workers’ compensation losses themselves rather than paying premiums to an insurer. The employer may set aside reserves and use a formal structure to handle claims, such as a third-party administrator, a trust, or a captive, and can add stop-loss protection to limit catastrophic loss. This approach is typical for larger employers who have the financial resources to fund ongoing claims. In contrast, a small deductible program still relies on insurer coverage with only a deductible paid by the employer; retrospective rating involves adjusting premiums after the period based on actual losses but remains an insurance arrangement; and the assigned risk/residual market is a state pool for employers who cannot obtain coverage.