Overview of Self Insurance

California has one of the largest workers' compensation self insurance programs in the nation. As of January 1, 2012, a total of 7,957 California employers were actively self insured, not counting past self insured employers that were still paying claims from their periods of self insurance.  These totals include:

Private Employers

• 271 individual private sector employers, 1,111 subsidiaries and affiliates of those employers covered under their programs.
• 23 private industry-specific group self insurers, with 3,208 members.

Public Employers

• 360 individual public sector employers.
• 79 JPAs (Joint Powers Authorities) - pools of self insured employers - with 2,905 members.

In addition, 2,500 former self insured employers were still paying claims from their periods of self insurance.  These include:

• 250 individual private sector self insured employers and 5 private sector self insured groups with 1,511 members.
• 88 individual public sector self insured employers and 10 JPA’ s with 636 members.

Rather than purchase insurance, these employers choose to self insure their workers' compensation liabilities to cover their employees for reasons of cost effectiveness, greater control over their claims programs, and increased safety and loss control management.

The success of a workers' compensation self insurance program is often dependent upon the effectiveness of loss control activities and claims supervision.  Most self insured employers contract with third-party administrators to perform some of these services, while some qualify to self administer their claims administration.

To receive self insured status, the employer must qualify through an application process, meet specified financial requirements, and be approved by the Director of Industrial Relations.

Requirements for Becoming Self Insured

The Application Process:

Employers wanting to self insure their workers' compensation liabilities must apply to the State of California, Office of Self Insurance Plans (OSIP) for approval.

The private sector application process for a new employer (not currently self insured in California) takes about three to four months. During that period, OSIP evaluates the application to determine the applicant's financial strength, proposed benefit delivery system, and loss prevention program. Current regulatory financial requirements for an organization desiring entry into self insurance are:

• $5.0 million shareholders equity.
• Average net profits of $500,000 per year for the last five years.
• Certified, independently audited financial statements.

Each subsidiary or affiliate company of a private applicant must file a separate application to become self insured. They may apply with the parent company or individually, and the same application form is completed by the subsidiary/affiliate.

Group self insurance by non-affiliated companies is permitted under California regulation, for both private and public sector employers. During 2001, group self insurers began forming in the private sector for the first time. The first such application was approved for new-car dealers, effective January 1, 2002.

Current regulations permit existing private self insurers of net worth over $10 million to add new subsidiary or affiliate companies with an application for an interim certificate. This provides immediate self insurance for the new subsidiary/affiliate company and is valid for 180 days. During the 180-day period, a three-page application for a permanent certificate must be filed and approved prior to the expiration of the interim certificate.

Administering the Benefit Delivery System:

Both insurers and self insurers are subject to audits by the Division of Workers' Compensation to verify that benefits are promptly and properly paid to injured workers. Self insured employers are required to provide the same scope of benefits as an insurance company.

Self insurers are also subject to periodic audits by OSIP to verify the workers' compensation liabilities reported and the security deposit posted to secure payment of those liabilities.
OSIP certifies individuals handling workers' compensation claims by means of an administrator's exam given throughout the year. A third-party claims administrator agency or company must also be licensed with OSIP to handle self insured claims.

Claims must be adjusted in California, and new self insurers are required to use a licensed third-party administration agency for their first three years of self insurance. After that time, self administration may be permitted.

Evaluation of Injury and Illness Prevention:

OSIP requires an evaluation of the new applicant's injury and illness prevention program. A compliance inspection by a private, independent, registered professional safety engineer, certified industrial hygienist, or certified safety professional is part of the application process. At minimum, the applicant must be in compliance with Cal/OSHA safety and health regulations.

Filing Requirements as a Self Insurer:

Once the application for self insurance has been approved, the self insurer is required to meet specified annual obligations.

Security Deposit:

California pioneered the Alternative Security Program (ASP) (Labor Code Section 3701.8) on July 1, 2003, as the first of its kind for any state Self-Insurance Security/Guarantee Fund in the United States.

With the ASP, the Fund arranges collateral on behalf of all of its participating (eligible) members. In lieu of securing collateral individually with OSIP, each member is assessed its share of an overall program fee. In turn, each year, year, the Fund structures optimal risk transfer and places it in the financial markets using standard ISDA ( International Swaps and Derivatives Association) documentation. Excluded or partially participating private self insurers are required to post and maintain a minimum security deposit of $220,000 or a larger deposit based on the amount of their expected future liabilities for payment of compensation.
Information Bulletins: All Types of Securities

Annual Reporting Requirements:

A self insurer must file an annual report completed jointly with the claims administrator which describes:

• Claims paid in indemnity and medical.
• Future liability on open claims.
• Average number of employees and total wages for each adjusting location.
• A list of all open indemnity claims.

Fees:

Private self insurers annually pay the following fees:

• UFA – User Funding Assessment
• FA – Fraud Assessment
• SIBTF – Subsequent Injury Benefits Trust Fund
• UEBTF – Uninsured Employer Benefits Trust Fund
• TCIF- Targeted Consultation Inspection
• DLSE- Labor Enforcement and Compliance Fund 
• Annual License Fee
• Per Capita Charge per Employee
• Alternative Security Program (ASP) Assessment

FY 2010/2011 Assessments (.pdf)

Last updated August 16, 2013