Increased Risk to America’s Small Businesses Highlighted by Recent Self-Insured Group Closures

Research shows most small businesses unaware of financial risk, legal responsibilities of self-insurance

Reno, Nev. — Feb. 25, 2008 — The recent closures of self-insured groups in California and New York represent the inherent risks that self-insurance groups for workers’ compensation pose to small businesses. However, more than half of small business owners (58 percent) nationwide are unaware that companies belonging to self-insured groups remain financially responsible – often for years – for the claims of all companies in their group, not just their own businesses, according to the recent Small Business Opinion Poll conducted by Opinion Research Corporation commissioned by EMPLOYERS®, America’s small business insurance specialist®.

When asked about the closure of several self-insured groups over the past year, 85 percent of small business owners and managers surveyed said they were unaware of such closings. In January, CRM Holdings confirmed the closure of the Preferred Auto Dealers Self-Insured Program and the Vintners and Independent Producers Self Insurance Program of California, a wine-making industry group, both in California. A national issue, seven such SIGs failed in New York in 2008, and litigation continues in the financial failures of self-insured groups in Tennessee, Kentucky and California.

“Businesses today are closely evaluating all possible cost-cutting measures to reduce operating expenses, and while close and continuous examination of such costs is smart business, many small businesses are often lured by self-insurance’s promise of lower costs, unknowingly exposing their companies to increased risk,” said Martin J. Welch, president and chief operating officer, EMPLOYERS. “Unfortunately, many choose self-insured groups without understanding the collective financial risk and liability they inherit should other group members default or if the group is forced to close. That’s why we are working to educate small business owners about these risks and to serve as a resource as they work to lower costs, minimize risk or transition from a difficult situation.”

Self-Insured Groups vs. Strong Private Carrier

The most recent American Jurisprudence treatise published on Insurance law states that “So-called ‘self-insurance’ is not insurance at all, but rather is the antithesis of insurance.” Rather than shifting a company’s risk to a third-party insurer, the company has chosen to retain the risk of loss, and injured employees must pursue their claims against the employer or the self-insured group association.

Conversely, employers choosing coverage from private, traditionally structured carriers like EMPLOYERS are relieved from bearing the costs of accident claims because the benefits must be provided by the private carrier. Private insurers assume the financial responsibility for policyholders’ claims, and strategically position them to benefit from effective loss control, fraud prevention, and other critical professional insurance services. Although self-insured groups do present increased risk and liability, there are groups who operate successfully.

Selecting Workers’ Compensation Coverage

When selecting a workers’ compensation carrier, cost is certainly important, but it’s also important for businesses to consider whether they are leveraging value-added programs such as accident prevention savings offered by service-oriented carriers and whether they could be unknowingly putting their bottom line at risk. Price logically serves as a deciding factor in many day-to-day business circumstances, but when it comes to insurance, a workers’ compensation carrier’s focus on safety, fraud, managed care and ability to execute a three-point contact between the employer, injured worker and physician provide added value that better protects businesses for the future.

Following are questions businesses should ask when selecting workers’ compensation coverage and if they are already a member of or are considering leaving a self-insured group.

Ten Questions Businesses Need to Ask about Workers’ Comp Coverage

Ten Questions Businesses Should Ask Their Self-Insured Group Administrator

About the Small Business Opinion Poll

The ORC survey, commissioned by EMPLOYERS, America’s small business insurance specialist®, sampled 501 owners or managers of small businesses with 1-99 employees. Data was collected through telephone interviews during the period August 14-22, 2008, and results have a +/- 4.8% margin of error. The sample is stratified across business size and industry grouping. More than half of survey results were drawn from businesses with 19 or fewer employees in manufacturing/construction, transportation/ communication, wholesale/retail, financial services, or personal/professional services businesses.

Contact Information

Media Contact: Lauren Meckstroth, The Abbi Agency
(775) 446-4678 or

Company Contact: Mike Paquette
(775) 327-2562 or

Investor Relations Contact: Adam Prior, The Equity Group, Inc.
(212) 836-9606 or

About Employers Holdings, Inc.

EMPLOYERS® and America’s small business insurance specialist® are registered trademarks of EIG Services, Inc. Employers Holdings, Inc. is a holding company with subsidiaries that are specialty providers of workers’ compensation insurance and services focused on select, small businesses engaged in low-to-medium hazard industries. The Company operates throughout the United States, with the exception of four states that are served exclusively by their state funds. Insurance is offered through Employers Insurance Company of Nevada, Employers Compensation Insurance Company, Employers Preferred Insurance Company, Employers Assurance Company and Cerity Insurance Company, all rated A- (Excellent) by the A.M. Best Company. Not all companies do business in all jurisdictions. See and for coverage availability.