In reality, the most important insurance decision is rarely discussed—and almost never framed explicitly:
Do you want to be in the business of insurance, or not?
This question sits underneath every insurance structure choice, yet most organizations never consciously answer it.
What Guaranteed Cost Really Means
A guaranteed cost program is the clearest expression of not being in the business of insurance. The employer pays a fixed premium and transfers nearly all financial risk to the carrier.
Behind the scenes, every premium dollar is allocated into three buckets:
Click Link to Access Free PDF Download
“How Do I Get My Adjusters To Follow My Account Handling Instructions?”
-
Losses paid on claims
-
Expenses to run the insurance operation
-
Profit for the carrier
If losses are lower than expected, the insurance company keeps the surplus. If losses are higher, the carrier absorbs the volatility—at least in the short term. Over time, experience rating adjusts and premiums rise or fall accordingly.
Guaranteed cost offers simplicity and predictability. It also caps upside. Employers are purchasing certainty, not opportunity.
That’s not wrong—but it is a strategic choice, whether recognized or not.
The Moment Participation Begins
The moment an employer moves into a retrospective rating plan, captive, high deductible program, or self-insurance, the relationship changes fundamentally.
At that point, the employer is no longer just buying insurance. They are participating in the business of insurance.
Participation means retaining some portion of risk. That retained risk creates both exposure and opportunity. Losses now matter in real time, not just in future experience mods. Improvements in claim handling, return-to-work execution, and medical management can generate immediate financial impact.
This is where insurance structure stops being an administrative purchase and becomes a financial strategy.
Where Profit Actually Comes From
Participating in insurance is not about hoping for fewer injuries. Injuries happen. What separates high-performing organizations is what happens after the injury.
Employers who successfully participate in the insurance business tend to:
-
Communicate early and consistently with injured employees
-
Control medical direction and treatment quality
-
Identify problem claims before they escalate
-
Manage litigation proactively
-
Execute disciplined return-to-work programs
When these systems are strong, retained risk becomes an advantage. When they are weak, retained risk becomes a liability.
Insurance structure does not create discipline—but it determines who benefits from it.
Risk, Reward, and Control Are Linked
As employers move away from guaranteed cost and retain more risk, three things increase together:
-
Risk exposure
-
Financial reward potential
-
Operational control
More control allows employers to align vendors, claims strategies, and outcomes more tightly with business objectives. More reward creates financial justification for investing in better systems. More risk demands maturity, predictability, and leadership alignment.
There is no structure that delivers upside without responsibility.
The Question Most Employers Skip
Too often, organizations jump straight to market conversations:
-
“What are the rates?”
-
“Who has the best program?”
-
“Can we save money this year?”
Those questions come too late.
The first question should be:
-
Do we want predictable costs, or are we willing to accept variability in exchange for opportunity?
-
Do we trust our ability to manage claims well?
-
Do we want control, or convenience?
For many employers, guaranteed cost is the right answer—especially if predictability is low or systems are immature. For others, remaining fully transferred means leaving value on the table year after year.
A Strategic, Not Emotional, Decision
Being in the business of insurance is not about aggressiveness or risk appetite alone. It’s about alignment.
Alignment between:
-
Leadership tolerance for volatility
-
Financial strength and collateral capacity
-
Predictability of losses
When those elements align, participation makes sense. When they don’t, full risk transfer may be the most responsible choice.
The mistake is not choosing guaranteed cost.
The mistake is choosing a structure without answering the question first.
Do you want to be in the business of insurance—or not?
Michael Stack, CEO of Amaxx LLC, is an expert in workers’ compensation cost containment systems and provides education, training, and consulting to help employers reduce their workers’ compensation costs by 20% to 50%. He is co-author of the #1 selling comprehensive training guide “Your Ultimate Guide to Mastering Workers’ Comp Costs: Reduce Costs 20% to 50%.” Stack is the creator of Injury Management Results (IMR) software and founder of Amaxx Workers’ Comp Training Center. WC Mastery Training teaching injury management best practices such as return to work, communication, claims best practices, medical management, and working with vendors. IMR software simplifies the implementation of these best practices for employers and ties results to a Critical Metrics Dashboard.
Contact: mstack@reduceyourworkerscomp.com.
Workers’ Comp Roundup Blog: http://blog.reduceyourworkerscomp.com/
Injury Management Results (IMR) Software: https://imrsoftware.com/
©2025 Amaxx LLC. All rights reserved under International Copyright Law.
Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker, attorney, or qualified professional.
