Document e7oyzgnyQq4E1RV77Y5dndEaM

cent, stock insurers have steadily increased their proportion of the business Self-insurers In all jurisdictions (except Nevada, North Dakota, Puerto Rico, Texas, the Virgin Islands, and Wyoming), employers are permitted un der certain conditions to self-insure workmen's compensation Although most jurisdictions re ported 200 or fewer self-insurers, self-insured employers in 1970 paid 14 I percent of the workmen's compensation benefits Self-insurance is becoming popular among those who qualify In 1960 self-insurers paid only 12 4 percent of the benefits Most states report an increase also in the number of selfinsurers Possible explanations are increasing cost consciousness, sales activities of agencies who seek to manage self-insurance programs, and the business merger movement which in creases the size of firms and their ability to self-insure Self-insurance is attractive primarily because it may be less costly than insurance An in surance premium is designed to pay the losses and expenses of the insurer and provide a margin for profit or contingencies The selfinsurer hopes to save money on the loss or the expense and profit components of the pre mium The loss component equals the average loss the insurer expects the employer and others like him to experience If the employer is so much better than the average employer in his class that his expected loss may be less, he would save money by self-insunng In the short run, however, the loss experience may differ substantially from the expected loss Indeed the loss m a single year might be cata strophic The larger the number of em ployees, the less the nsk of fluctuation in annual losses For most employers, the nsk is such that self-insurance is out of the ques tion For others, the comparison between actual and expected loss is an important con sideration By self-insunng, the employer can save that part of the premium charged to cover selling expenses, some general administration ex penses, and profits There may also be savings on loss prevention and loss adjustment services even though these services must still be performed Other considerations include the relative quality of the safety and claims services pro vided by insurers, by management service organizations, and by employers themselves, by tax factors, and by the opportunity cost of paying an insurer a premium instead of pay ing losses and expenses as they occur Cost Levels and Allocation Workmen's compensation costs and other costs of industrial accidents impose a burden on industry, workers, and society generally The magnitude of these costs and their dis tribution have important economic implica tions and pose several critical issues of policy. Cost levels Workmen's compensation m 1970 cost em ployers almost $5 billion or more than $1 13 per $100 of payroll These costs include the premiums paid to private insurers on state funds and the benefits and administrative costs paid by self-insurers Other employer costs of industrial accidents or the losses to em ployees not covered by workmen's compensa tion are not available Variation over time. Costs per $100 of payroll were less m 1970 than in 1940, but have increased since the late fifties The 1970 dollar costs were II 6 times the 1940 costs, 4 8 tunes the 1950 costs, and 2 4 times the 1960 costs Variation among industries. In its 1969 sample survey of employee benefits, the Cham ber of Commerce of the United States found that workmen's compensation costs were 0 9 percent of gross payroll In manufacturing industries the costs were 1 2 percent, in nonmanufactunng industries 0 5 percent These rates ranged from 0 1 percent for insurance companies to 1 8 percent for primary metal in dustries A 1970 sample survey by the Bureau of Labor Statistics found workmen's compensa tion costs equal to 0 9 percent of gross payroll plus employer payments for legally required insurance programs and employee benefit plans In manufacturing, compensation costs were 0 8 percent, in nonmanufactunng, 0 9 percent The percentage for office workers 193