Self Insurance Plans (SIP)

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 (SIP) 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, SIP 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 SIP to verify the workers' compensation liabilities reported and the security deposit posted to secure payment of those liabilities.

SIP certifies individuals handling workers' compensation claims by means of an administrator's exam given twice a year. A third-party claims administrator agency or company must also be licensed with SIP 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:

SIP 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:

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.

Other Fees:

Private self insurers annually pay a license fee, fraud investigation assessment, user funding assessment, bankruptcy assessment, and for some a Cal/OSHA assessment.

Last updated November 1, 2007