What does self-insurance in workers' compensation mean?

Self-insurance in workers' compensation refers to a situation where employers choose to retain the risk of losses rather than transferring it to an insurance carrier. When employers opt for self-insurance, they set aside funds to cover potential claims and expenses associated with workplace injuries directly, rather than paying insurance premiums to an outside provider. This means that they are responsible for managing and financing any claims that arise.

In this arrangement, employers assume a significant responsibility for their workers' safety and the financial implications of any injuries, which can lead to a more vested interest in maintaining safe workplace conditions. It also allows flexibility in how claims are handled and can potentially result in cost savings if the organization can effectively manage risks and control costs associated with workplace injuries.

The other responses highlight functions of traditional insurance models rather than self-insurance. For instance, passing all risks to insurance carriers indicates that the employer does not retain any risk, which contradicts the concept of self-insurance. Paying a fixed premium for coverage typically applies to standard insurance policies rather than a self-insured approach, and suggesting that all workers are covered without cost misrepresents how workers' compensation operates, as there are often underlying costs associated, whether through premiums or funding reserves for self-insured risks.