I had a couple of interesting conversations last week at the National Council of Compensation Insurance Annual Issues Symposium about alternative risk management in workers' compensation, instigated by discussions on what I thought would be disruptions to the marketplace should Oklahoma non-subscription take hold.

As you likely are aware, it is my opinion that non-subscription represents a real threat to the workers' compensation insurance market and will constitute significant competition for the risk management dollar should the idea spread to other states. Indeed, Stephen Klingel in his State of the Line address acknowledged that many states were watching Oklahoma to see what happens and that this could represent a challenge for the industry to compete against.

One issue with non-subscription that I presume would need to be dealt with if this option were to be a viable alternative to traditional workers' compensation insurance and stay within the Oklahoma mandate that it provide the same or better benefits to injured workers is the life time medical provision - under Employee Retirement Income Security Act (ERISA) plans there are no guarantees of continuing medical beyond the employment period.

In workers' compensation, medical treatment for the condition deemed to have arisen out of and in the course of employment is covered for the life of the injured worker unless compromised by a settlement agreement. I am unclear how ERISA plans would provide for this requirement but I suspect that those who put together such systems have this worked out.

One aspect of non-subscription that plays well to the work force though is the tendency of non-subscribers to become completely obsessive with safety.

In conversations I had at NCCI with people that have been studying the option, employers that do non-subscribe in Texas with ERISA plans are vigilantly safety-conscious because a failure of safety by the employer exposes the employer to big civil damages.

As for the impact on the industry that is a big unknown. I talked with several actuaries at NCCI. They expressed that the concern over reduction of insured base upon which to spread risk was voiced when large-deductible programs were introduced, but the experience was just the opposite.

However, non-subscription is different. Non-subscription takes an employer completely out of the risk pool, while large deductibles keep an employer in the risk pool, albeit at a different loss level.

Another matter of concern should be financial fundamentals of the entire risk management scene i.e. what happens when a non-subscriber folds, becomes insolvent or otherwise is unable to take care of its obligations.

The one beauty of the workers' compensation system is that an intermediary, i.e. insurance company, takes the financial risk and pays fees and taxes into state systems that guarantee performance if the insurance company can no longer function. Self insureds likewise make payments into guarantee systems to protect injured workers over the long term.

This backstop was beautifully played out in the late 1990s when so many insurance companies fell victim to the intoxication of Unicover brew and laid so many claims into the hands of state insurance guarantee associations.

The risk is playing out now with self-insurance groups (SIGs) finding all sorts of financial issues with their programs.

For instance, the Healthcare Industry Self Insurance Program of California is encouraging former members to rejoin to help secure the long-term solvency of the self-insured group by offering them the option of paying their liabilities in installments after seeing membership decline in 2009 and 2010 making funding the long-term liabilities of the group a challenge.

One of the oldest self-insured groups in Nevada, the Nevada Restaurant Self-Insured Group, was winding down at the end of 2011 after deciding it is no longer financially practical to continue taking on risks, forcing more than 1,700 employers to find a new source for workers' compensation insurance, some who have been covered by the group since it was founded in 1995.

And all of us have seen the mess that has been created by the failure of Compensation Risk Managers and the ongoing litigation and financial aftermath of those programs.

This is all brought home by the recent announcement that the Orange County Board of Supervisors in California adopted a resolution that its self-funded workers' compensation program is to be brought back up to 80% funding of estimated losses over the course of the next five years, moving $2 to $3 million in departmental budgets into the work comp fund.

So where does all this lead us?

Every employer that is part of a SIG, a captive, a retro plan, a high deductible, or has coverage with an A- carrier needs to take a look at the financial underpinnings. We assume that smart people know what they're doing when entering into alternative risk propositions to cover the mandated obligation towards those in the employ of the company.

But we made bad assumptions about those people in many past instances of failed pension plans. Workers' compensation, when one gets down to the basics, is nothing different it's all about conservative and robust financial planning.

I'm still intrigued by Oklahoma style non-subscription. I think it brings significant market competition to the workers' compensation insurance industry. But these long term issues need to be addressed.

And my guess is that if such optional plans take off in the future, some smart insurance people will put together new specialized products that put all the elements together and address the long term risk issues.

David J. DePaolo is founder, chief executive officer and editor-in-chief of WorkCompCentral.