AVOIDING COLLATERAL DAMAGE
Collateral requirements under self insured or large deductible workers compensation programs can become onerous to employers.  The collateral ensures that the employer remains financially responsible for workers compensation claim payments, which can stretch out over many years. As multiple policy year collateral requirements become stacked over time, the amount of collateral grows to a level where its cost becomes significant to the organization: including the direct costs to secure the surety bond or letter of credit (LOC) and the indirect costs of tying up funds that the employer could be using for other business purposes.

The biggest and most frequent mistake made by an employer and their insurance agent is not being proactive in managing collateral requirements.  Most do not have the knowledge or expertise to anticipate the problem and to proactively negotiate collateral requirements with workers compensation insurers and self insurance regulators.  If collateral requirements are ignored or not managed, excess financial resources are effectively removed from the employer organization for many years.

org has successfully helped hundreds of employers gain control over their workers compensation collateral requirements since 1986.  Here are a few examples:

• A self-insured food manufacturer was notified by the Department of Labor and Industries that its surety bond requirements would increase by 200% based on L&I's calculations.  We underwent a detailed analysis of the manufacturer's claims and found that changes in claim adjuster reserving practices were skewing results.  We presented our findings to L&I staff and immediately obtained an $800,000 decrease in the manufacturer's surety requirement.

• A professional employment organization (PEO) had high deductibles with its workers compensation insurance for years and was posting nearly $20 million in collateral with its insurance company.  Our analysis indicated that $11 million of the total was unnecessary (and this amount was later confirmed independently by an actuary). Unfortunately, the PEO didn't have any leverage with the insurer because collateral terms hadn't been negotiated before the coverage was purchased.  We helped the PEO's insurance broker find another workers compensation insurer who agreed in advance and in writing how collateral would be calculated going forward, providing greater certainty and financial relief to the PEO.