Which one of the following is true regarding self-insured workers compensation plans?

• A. Many organizations that self-insure also purchase excess insurance.
• B. Employers who self-insure are required to use a third-party administrator.
• C. Small-to medium-sized employers are typically self-insured.
• D. Employers that self-insure are not required to post any collateral.

Answer: (A)

Self-insured workers’ compensation means the employer funds and administers its own claims rather than paying premiums to an insurer. Because this places a larger and more volatile financial obligation on the employer, many self-insured programs add excess (stop-loss) insurance. The excess policy protects against very large or catastrophic claims by kicking in after the employer’s own retention is exhausted, which helps keep financial exposure manageable while still allowing the employer to control claims handling and potentially reduce overall costs. This combination of self-funding with excess coverage is a common, practical approach for managing risk.

Other statements don’t fit as well. A third-party administrator isn’t required; some employers administer claims in-house, while others use TPAs, but it isn’t a legal requirement. Self-insurance is generally more common among large employers with substantial resources, not small-to-medium ones. And in many jurisdictions, collateral or security backing is required to prove the ability to fund claims, so the idea that no collateral is required isn’t generally accurate.