What does it mean to be self-insured for workers’ compensation?

If you’re considering self-insuring, it’s important to understand the steps involved:

• State approval: Employers must apply for and receive approval from their state to become self-insured. Not every state allows this option.

• Financial proof: States require businesses to demonstrate strong financial security before granting approval. This often means showing audited financials, surplus funds, and the ability to cover large claims.

• Direct payments: When an employee is injured on the job, the employer pays medical expenses, lost wages, and other benefits directly from its own funds.

• Claims management: The employer is responsible for managing and processing claims, including compliance with reporting requirements.

• Third-party administrators (TPAs): Many self-insured employers contract with TPAs to handle claims administration and reduce the operational burden.

• Excess insurance: Most self-insured employers purchase excess workers’ compensation insurance to protect against large or catastrophic claims that exceed a certain dollar amount. Depending on the state, this may be a requirement to become self-insured.

At Sentry, we provide excess workers’ compensation coverage for self-insured employers, and we can act as your TPA. Our in-house claims team can help you manage costs, stay compliant, and support your employees effectively.

Like any coverage option, self-insurance comes with benefits and drawbacks.

• Opportunity for cost savings if claim frequency and/or severity remain low

• Greater control over claims management and workplace safety programs

• Flexibility in how you allocate and manage funds

• Your business takes on the financial risk of paying claims directly

• Requires significant cash reserves and financial stability

• Not every state permits self-insurance

Self-insuring can be a cost-effective alternative to traditional workers’ compensation insurance, but it isn’t right for every employer. Large companies with consistent financial strength often benefit most, while smaller companies may prefer the predictability of traditional coverage.

At Sentry, we help you evaluate whether self-insured workers’ compensation is the right fit. If it is, we’ll partner with you by providing excess coverage, claims administration, and expert guidance so you can focus on running your business while protecting your employees.