Safety Groups vs. Self–Insured Trusts
Group self–insurance plans are known by a variety of names. Some of these entities refer to themselves as multiple employer trusts, others as association trusts, and some as self–insured consortiums. At first glance, membership would appear to be an economical way for an employer to acquire state–mandated workers' compensation coverage. But, employers — beware.
There are multiple drawbacks to self–insured trusts as explained in the chart below. When joining a trust, a company has not purchased a policy of insurance. Therefore, it has not transferred its risk exposure (or its liability for risk) to a legally accountable entity such as an insurance company.
The following chart offers a clear comparison between the inherent benefits of membership in a workers' compensation safety group versus the features displayed by self–insured trusts.
| Safety Groups | Self-Insured Trusts | |
| COST | The maximum dollar amount members pay is their discounted premium. | The cost is open-ended. There is no limit to a member’s liability and the Workers’ Compensation Board can levy assessments to fund any unpaid claims. |
| LIABILITY | None | Joint and several liability, which means every member of the trust is responsible for every other member’s claims, and is even liable for the claims of bankrupt members. |
| PROTECTION GUARANTEE | Unlimited | If the trust has fiscal problems or becomes insolvent, there are no government or private mechanisms to protect members. The employer has the legal burden to pay. |
| SECURITY DEPOSIT | None | Varies by trust. Some require the deposit of securities and/or cash and may require an irrevocable letter of credit. |
| POLICY COVERAGE LIMITS, PART 1 WORKERS’ COMPENSATION | Unlimited | There is no policy and, therefore, no transfer of liability. |
| POLICY COVERAGE LIMITS, PART 2 EMPLOYER’S LIABILITY | Unlimited | There is no policy so self-insurers must purchase it on their own. |
| SPECIFIC REINSURANCE WORKERS’ COMPENSATION | Each Safety Group has its own attachment point per claim. Coverage is unlimited beyond the attachment. | Each trust has its own attachment point per claim. Coverage may be limited above the attachment point. |
| AGGREGATE REINSURANCE WORKERS’ COMPENSATION | There is no need for Aggregate Insurance since Group members cannot be charged anything more than their own discounted premium. | Varies by trust. Trusts are not legally required to purchase Aggregate Insurance. |
| SPECIFIC REINSURANCE EMPLOYER’S LIABILITY | Each Safety Group has its own attachment point per claim. Coverage beyond the attachment point is unlimited. | Each trust has its own attachment point per claim. However, coverage is typically limited. |
| AGGREGATE REINSURANCE EMPLOYER’S LIABILITY | There is no need for Aggregate Insurance since Group members cannot be charged anything more than their own discounted premium. | Varies by trust. Trusts are not legally required to purchase Aggregate Reinsurance coverage. |
| LOSS ADJUSTMENT EXPENSES | Incorporated into Group Expense Charge. | Billed to claims file. |
| HISTORICAL PERSPECTIVE | Lovell’s Safety Groups demonstrate longevity: its oldest Group was established in 1923, and the most recent, in 1990. | Trusts have radically variable track records. The majority of trusts were formed less than a decade ago, while several older ones have had serious problems with underfunding. |
| GOVERNMENTAL OVERSIGHT | All Safety Groups abide by stringent regulations and oversight enforced by the New York State Insurance Department. | Trusts submit to minimal supervision, and what exists is performed by several employees at the Workers’ Compensation Board. Most states regulate trusts far more aggressively than New York, mindful of the disastrous situations in Florida and Illinois. In a number of states, trusts are actually illegal. |