Befitting its financial impact on a company's bottom line, large corporations have long had options as to how they secure their required workers' compensation coverage. Employers seeking maximum control and/or cost savings in their insurance programs often select self-insurance or large deductible plans.

Self-insurance programs, while providing maximum control, come with their own set of administrative challenges. An employer must obtain regulatory approval for self-insured status in every state in which it operates. In many states, the application process is fraught with bureaucratic delays, political maneuvering, and irregular rules and regulations. Self-insurers with exposures crossing state boundaries sometimes have problems managing their collateral requirements over such a widely dispersed arena of regulators.

Large deductible workers' compensation plans are popular because they offer most of the advantages of a self-insurance plan, but are typically insured by a licensed insurer, which reduces red tape. Deductibles can range from $100,000 to $1 million per any one loss. Insurance companies charge a deductible premium, which is often discounted as much as 80 percent from the manual premium and the actual cost of claims as paid. Most services are included in the deductible plan on a bundled basis. Because the insurer is statutorily responsible for paying claims, a letter of credit or other acceptable liquid collateral is usually required to secure the insured employer's payments of its share of expected ultimate losses. However, while there are many advantages of large deductible plans, risk financing for the deductible can be problematic.