By Siam 
Most business owners carry workers’ comp insurance for their staff. In the U.S., it’s required in almost every state. But here’s the question many employers never ask. What happens when one claim is massive?
Picture this. One of your employees suffers a severe spinal injury at work. Doctors say he’ll need round-the-clock care for the rest of his life. By the time the dust has settled, the total bill is pushing $10 million. That’s an outlier claim. It’s rare, but it happens. In fact, a number of workers’ comp claims in 2023 exceeded $1 million.
Just one claim like this can sink your business. But that’s exactly why supplemental excess insurance exists. It’s the safety net that catches those once-in-a-career claims before they take your company down. And that’s what we’ll be discussing in this article.
Most workers’ comp claims are manageable. In fact, the average workers’ compensation claim cost across all types was $47,316 in 2022 and 2023, according to NCCI.
If your company is self-funding, you pay claims directly instead of buying a full insurance policy. This works well for many employers. You keep control and often save money.
According to Statista, 67% of large U.S. employers use some form of self-insurance as of 2025. Companies in this category often save 10%–20% compared to traditional premiums.
But here’s the catch: you also take on the risk of big claims. That $47,316 average? Most businesses can handle that. But that’s average.
Outlier claims are not average. These are extremely high claims, usually in the range of millions. Outlier claims exceed a fixed loss threshold fixed by employers, and paying out-of-pocket can be devastating to employers.
Outlier claims typically happen with:
- Permanent disabilities
- Traumatic brain injuries
- Long-term care costs
- Cases that drag through litigation for years
A real example: In September 2024, a $5.2 million workers’ comp settlement was secured for a client left quadriplegic after a workplace injury. Settlements like these aren’t fringe. Numbers like this can put any business out of business.
So, how do you protect your business against outlier claims that can wreck it? By using excess insurance or supplemental layers of insurance. This works as a financial backstop above whatever your self-insured retention (SIR) is.
Here’s how it plays out in practice:
You (the employer) catch the first layer of any claim, say $500,000. This is your self-insured retention. Once that layer ends, the next layer kicks in.
A typical structure will look like this:
- Employer Retention: You pay the first $500k.
- First Excess Layer: An insurer covers the next $4.5 million (up to a $5M limit).
- Additional Supplemental Layer: A second insurer covers everything from $5M up to the statutory limit.
Why do this? Because medical inflation is hitting hard. Healthcare spending is projected to grow by 5.4% yearly until 2031, and we’re seeing a 6% year-over-year increase in workers’ comp claim severity.
Spreading the risk across layers makes the premium for that “top” coverage surprisingly affordable because that second insurer only pays if things go truly sideways.
As Prescient National succinctly puts it, excess insurance protects against an unexpected catastrophic loss, as well as the unexpected frequency of losses.
Here’s what supplemental insurance layers actually matter for businesses:
- They protect against catastrophic losses that could wipe out cash reserves or force layoffs
- They stabilize your financial planning by capping your known maximum exposure per claim
- They make self-insurance viable for mid-sized employers who otherwise couldn’t afford the tail risk
- They help with budgeting and forecasting by converting unknown potential losses into a known premium cost
And there’s something else worth mentioning. This isn’t just about protecting your balance sheet. When a seriously injured worker knows their employer has the financial infrastructure to actually pay for long-term care, return-to-work programs, and specialist treatment, outcomes improve.
These layers aren’t just smart risk management. They’re also the right thing for your employees.
So, how do you actually get started with supplemental layers? You can’t just buy a policy and forget it. You have to be strategic. Here’s what works:
Do a real Risk Assessment. Don’t just guess. Dig into your historical claims data. Identify high-risk roles and look at near-miss incidents. The goal here is to know your weak spots.
Pick the Right Retention Level. This is a balancing act. You want to retain enough risk to save on premiums, but not so much that a bad year sinks you. So, start by asking yourself, “How much can I absorb?” Next, look at industry benchmarks. This will give you an idea of what your SIR should look like.
Layer Your Coverage Strategically. Don’t just take the first quote. Look at stacking different layers. But don’t set and forget. Review those limits every year. A limit that felt safe five years ago might be too low today.
Self-funding your workers’ comp gives you control and saves you money. But that control comes with responsibility. You need to protect against the scenarios that can undo years of savings in a single event.
Outlier claims are rare. But they’re also inevitable. The question isn’t whether you’ll face one. It’s whether you’ll be financially positioned to handle it without panic, layoffs, or worse.
By layering in smart supplemental excess coverage, you’ll build a business that can take a hit. You’ll also be protecting your employees and your peace of mind.
It’s not just about managing risk. It’s about making sure your company is still standing tomorrow, no matter what happens on the floor today.