Workers’ compensation premiums can be a significant concern for Australian businesses, especially where unbudgeted developments occur. One option for larger employers is to consider self-managing their workers’ compensation (“self insurance”), which can improve cost consistency, and provide greater financial control of downstream services.
What is self insurance?
Self insurance is a workforce risk strategy where an organisation applies for a license to manage its own losses for workers’ compensation claims, as an alternative to paying premiums to a WorkCover Agent or insurer. The laws and guidelines vary from state to state, with over 29 Acts and Ordinances governing self insurance across Australia. It is a complicated topic, but something well worth considering, particularly for an employer with over 500 staff.
Why self insure?
In a nutshell, self insurance can give employers far greater control over their money. Under conventional or underwritten policies employers pay premiums before any claims are made. With a self insurance program, however, no money is paid until the claim actually occurs. In some cases claims take time to settle, so businesses save their money until the claim is actually payable, which in turn facilitates a higher degree of cost control.
Self insurance has the added benefit of providing strong incentives to control workers’ compensation losses through disciplined safety management and injury prevention practices. These are required in order to meet the necessary standards to be licenced as a self insurer, and significantly improve workforce productivity.
Will self insurance work for my business?
The question of whether self insurance is viable for an employer requires an assessment of the organisation’s business performance, safety record and claims history.
There are strict eligibility requirements, and regulation around management of the scheme differs from state to state, and a formal application process required in order to be licenced as a self insurer. To qualify for self insurance, an employer needs to be paying at least AUD$3,000,000 in premiums, and meet FTE (full time equivalent) requirements that vary between jurisdictions. Below we’ve included a guide to the FTE requirements by jurisdiction.
- NSW 500 FTE
- QLD 2000 FTE
- SA 200 FTE
- Victoria 500 FTE
- Comcare 500 FTE
The requirements are quite strict, both around the prudential and legal requirements to be awarded a license, and the ability to administer claims. The legislative requirements also vary from State to State, covering the guidelines and safety management requirements.
What are the next steps if my business is considering self insurance?
Self insurance is complex, but can have practical cash flow benefits for businesses that are in the position, both financially and from a compliance perspective, to manage their license.
When Gallagher Bassett partners with an organisation who are considering self insurance, the first step is always to conduct a feasibility study to determine whether self insurance would be beneficial, or if there are alternative risks management services available for them as a more practical alternative.
Partnering with a self insurance specialist like GB means that you can be sure that you will be able to realise the financial benefits available. If you would like to know more, get in touch with GB and we’ll be able to review your eligibility and take you through your options.
