Chapter 8. Office of the Director
Subchapter 2. Administration of Self-Insurance Plans
Article 13. Group Self Insurance

§15471. Initial Feasibility Study.

(a) Accompanying each group self insurer's initial application for a Certificate To Self Insure required by Section 15203 of these regulations, shall also be an feasibility study prepared by an independent risk management individual or firm addressing all of the following:

(1) The advantages and disadvantages of group self insurance for the proposed group members as compared to the options of individual self insurance, or coverage under a policy issued by a carrier(s);

(2) Identification of all proposed group members and the combined total payroll for the proposed group self insurer;

(3) A consolidated summary of the historical workers' compensation claims loss experience and the allocated loss expenses of the proposed group members for the three most recent, completed, full policy years, as well as, the current partially completed policy year to the most current quarter under the current policy;

(4) An evaluation of the historical workers' compensation claims costs for the group members and actuarial projection of the expected claims costs for the first five years of the group operation. The actuarial projection to be prepared by (A) an independent person with a designation of Fellow of the Casualty Actuarial Society (FCAS); or (B) by a member of the American Academy of Actuaries (MAAA) with current experience in making California workers' compensation actuarial projections.

(5) A five year proforma financial statement including, as a minimum, an income statement, balance sheet, projected cash flows, and claims payout projections. The proforma financial statement must include a detailed separation of assets, liabilities, retained earnings, taxes, and dividends. If any claims costs are discounted, the interest rate assumptions and payout patterns must be described and based on reasonable assumptions. The claims payout schedule shall be calculated using the 80th percent confidence level figures from the actuarial study.

(6) A summary of the specific details of the group self insurer's operating plan including, but not limited to:

(A) The legal and organizational structure;

(B) Method of governance;

(C) General management of the pool, including underwriting policies, insurance coverage, billing, etc.

(D) Rating plans or premiums or other means by which group funding during the first five years of operation will generated and the amounts to be generated by the methods proposed for each of the first 5 years of operation;

(7) The first 12 month budget of the group self insurer;

(8) Excess Insurance Coverage including estimated cost, attachment point of specific excess coverage policy and aggregate excess policy (if any), and maximum liability of each excess policy;

(9) Summary of the third party claims administration agency chosen to handle the group self insurer's claims;

(10) Safety and loss control services that will be available from the group self insurer to group members;

(11) Underwriting requirements for initial and subsequent member selection into the group self insurer, including particular emphasis as to whether any underwriting requirement would be excluded from coverage by the specific excess or aggregate excess insurance coverage;

(12) Name of certified public accountant that will prepare annual financial reports for the group self insurer;

(13) Name of actuary and their professional actuarial designation who will prepare actuarial reports for the group self insurer and the frequency of such evaluation reports;

(14) Means by which the group self insurer will post the required security deposit and how that cost or deposit will be allocated to the group members;

(15) Any fidelity coverage and errors and omissions coverage that will be maintained by the group;

NOTE: Authority cited: Sections 54, 55 and 3702.10, Labor Code. Reference: Sections 3700, 3701 and 3702.1, Labor Code.

HISTORY

1. New section filed 6-30-94; operative 6-30-94 (Register 94, No. 26).