New York Employers: Use Self-Insurance Trusts To Lower Mounting Workers’ Compensation Costs

New York’s workers’ compensation costs are the second highest in the nation, forcing many mid-sized employers in the Empire State to think about relocation or find alternative ways to manage spending.

The Problem: Unlimited Lifetime Benefits

While many states limit the duration of claims, New York offers unlimited lifetime benefits for permanent partial disability cases, leading to a much higher average cost of these claims. New York’s system of offering benefits for unlimited number of weeks encourages many workers to malinger or use the time off to find a new career.

It has even been noted that the absence of widespread job opportunities in parts of New York State may encourage some workers to use the system to compensate for lack of employment opportunities or to supplement their pension earnings and Social Security by filing a workers’ compensation claim as they near retirement.

The Case for Self-Insurance

Consequently, NY State Worker’s Comp does not attract standard insurance companies to write, compete, or discount policies, explains Elio Vecchiarelli, vice president of sales management for The NIA Group. As a result, Vecchiarelli and colleague, Scott Mangi, vice president of NIA’s Newburgh, NY, office, encourage some NY-based clients to consider self-insurance trusts that give employers with good loss experience and discipline a unique and proven method of funding their statutory workers’ compensation coverage at much lower costs.

"Self-insurance trusts are comprised of homogeneous companies, a factor which allows them to focus on one specific industry sector and implement serious risk management and loss control programs germane to that sector in order to deliver a better bottom line," explains Mangi.
The trust provides all necessary client services, including underwriting, claims management, loss control, and compliance monitoring. "However, trusts hold the bar high for an applicant," Vecchiarelli points out. Each applicant company must provide its workers’ compensation loss history for the five most recent years, an explanation of problem areas and the premium estimate for the coming year from the current insurer. Generally, trusts are looking for responsible insured’s that are committed to a safe work place for their employees and want better control of their program.

Elio Vecchiarelli

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"Trusts also have a history of demanding their members be strongly involved in loss control and prevention of injuries," notes Mangi. "Trusts process claims quickly and they focus on getting injured employees back to work. As a result, rates are typically 15 to 20 percent lower than a traditional insurer. With occasional cases, a 40 or 50 percent savings is possible," adds Vecchiarelli.

Additionally, companies with $500,000 or more in annual premium are good candidates for "stand alone" self-insurance, which ordinarily yields an even better bottom line.

Both trusts and stand alone self-insurance options should be strongly considered by New York-based employers to mitigate high workers’ compensation costs.