Definition of Self Insured
Self-insured, as it applies to workers' compensation, refers to an employer who chooses to self-insure in regard to providing workers' compensation coverage for their employees rather that purchasing workers' compensation insurance from an insurance company. An employer who is self-insured has to comply with state workers' compensation laws just like an employer who purchases workers' compensation coverage from an insurance company. The difference is a self-insured employer has taken the responsibility of paying their own workers' compensation claims.
An employer can become self-insured in one of two ways. They can become an individual self-insurer, or they can become a member of a self-insured group. In order to become self-insured, an employer has to meet requirements that vary from state to state. The main problem for a self-insured employer is that all workers' compensation payments come out of that employer's pocket. One huge claim or a wave of claims could be disastrous for an employer. However, what is known as "excess coverage" is available to cover unexpected losses. Excess coverage is not standard commercial coverage. It reimburses an employer for any claim that is over a specified amount.