Self insuring comp claims has its risks

Kudos to the Poughkeepsie Journal for a story published today about the continuing fallout from the failure of several New York self insured trusts formerly managed by CRM Holdings Ltd.

The story explains that 1,789 New York employers insured under CRM group trusts taken over last year by the New York State Workers' Compensation Board have been billed $133 million.

The bill is for unfunded workers compensation claims. It amounts to $74,000 for each of the employers that participated in the trusts under joint-and-several liability.

The bill is a hefty price for small employers of the size that typically participate in self-insured trusts or self-insured groups referred to as SIGs.

CRM surrendered its third party administrator license in New York last year after regulators claimed it failed to adequately reserve for claims and did not pay claims on time.

CRM said its business practices were sound and that it was a victim of economic conditions.

A couple of California SIGs managed by CRM have since voluntarily closed and state investigations of CRM's practices in New York are ongoing, according to the Poughkeepsie Journal.

SIGs are fine vehicles for self insuring, managers of financially sound groups tell Comp Time. But like other forms of self insurance, they need to be financially sound and set adequate reserves.

They also need solid regulation.

The Poughkeepsie Journal story quotes a risk manager for a New York construction company who says trust failures in the state could have been avoided with more effective regulation.

Some responsibility must also fall on the employers. While self insurance is a good way to reduce work comp costs, the Poughkeepsie story provides an example of how it can also be much more costly if participants are not careful.