How the Gig Economy Is Upending Worker’s Comp
The question of whether gig workers are employees or independent contractors has implications for Workers' Compensation insurance.
Self-insurance is one of the most cost-effective options in the primary Workers' Compensation market. Yet when it comes to shopping around at renewal time, few retail agents are likely to investigate this coverage option for their eligible clients. That's because several years of decreasing Workers' Comp premiums have narrowed the gap between what an organization might pay a self-insured group (SIG) for coverage versus a commercial insurer.
While premiums are always an important consideration in any business insurance decision, the value of the coverage is ultimately more important. And value is where SIGs shine.
SIGs became popular in the 1990s when the Workers' Comp market was going through a challenging cycle. Public entities (which form joint powers authorities rather than SIGs) and trade associations are the organizations that most commonly pursue self-insurance for Workers' Comp.
However, only 36 states allow SIGs. And forming a SIG can be a challenge, according to Joe Clifford, area president for RPS. Clifford works with seven SIGs in Michigan with combined annualized premium of more than $60 million.
"It helps to have favorable market conditions, where carriers are increasing rates or moving out of the market." Clifford explained. "In addition to having a group of companies willing to pool their Workers' Comp premium, their premium needs to be at a sufficient level that self-insuring is a viable option. The companies or organizations forming the SIG should also have minimal claims history, so that they're starting with a clean pool."
Excess Workers' Comp, both aggregate and specific, covers incurred claim costs over specific limits. They add another layer of protection and help ensure the pool is financially sound in the event of adverse claim performance. The pool also pays for a third-party administrator, loss control and claims adjusting services.
Asides from potential savings on premium costs, the benefits of a SIG include more control over losses and the opportunity to share in the SIGs profits via dividends. SIGs also don't pay state premium tax or assigned risk market charges.
"SIGs have a long-term focus on meeting the Workers' Comp needs of a particular industry," said Clifford. "Over time, rates are more stable. Participants also don't need to worry about their carrier losing its appetite for their class of business."
Claims management is another benefit. SIGs are willing to invest in this area because they see the return on that spend. Their claims teams are willing to put in the time to talk to members about return-to-work strategies and spend time on claims investigation. That's because they view their members as a long term relationship.
And they are right to do so.
According to Clifford, the SIGs he works with in Michigan experience renewal rates in the upper 90s. "Once an organization is in, they stay in."
Learn more about what's next for the Workers' Comp industry in the RPS 2022 U.S. Workers' Compensation Market Outlook.