Study: Small biz owners not aware of risks of self-insured groups

Oct 8, 2008

Orlando Business Journal–October 7, 2008

Small business owners are not aware of the financial risks involved in obtaining workers’ compensation insurance through self-insured groups, according to a new study by Opinion Research Corp.

Eighty-five percent of the 501 small business owners and managers surveyed nationwide by the Princeton, N.J.-based research group said they hadn’t seen, read or heard about the closure of several self-insured trusts last year. Seven such companies failed this year in New York, and litigation continues in the financial failures of groups in Tennessee, Kentucky and California.

About 58 percent of the respondents reported they are unaware companies belonging to self-insured groups remain financially responsible — often for years — for the claims of all companies in their group, not just their own businesses.

Only 34 percent of respondents realized they could be legally and financially responsible for the entire costs of workers’ compensation claims owed by their self-insured group.

Yet 27 percent of small businesses surveyed agreed saving money up front on workers’ compensation insurance premiums outweighs the financial risks posed by membership in a self-insured group.

The possible financial dangers associated with self-insurance include failure of the largest company in the group, successive years with serious injuries and the responsibility for paying out claims for up to five years, even if a small business leaves a group, the study said.