FOR IMMEDIATE RELEASE
IR# 94-29
Tuesday, July 19, 1994

CONTACTS:
John Duncan
(415) 703-4590
Richard Stephens
(415) 703-5571


Reform Allows Small Employers to Self-Insure As Groups As Alternative to Buying Workers' Comp Insurance

SAN FRANCISCO -- Medium and smaller-sized businesses in California now may band together and self-insure their workers' compensation liability as a group for the first time, Director Lloyd W. Aubry, Jr. announced.

"This reform allowing group self-insurance is potentially one of the most significant elements of the workers' compensation reform package signed by the Governor last year," Aubry said.

Under state law, all employers must carry workers' compensation insurance for their employees. Two ways exist to obtain this coverage: An employer may purchase an insurance policy from an insurance carrier, or be approved to self-insure by the Director of Industrial Relations. Under self-insurance, employers cover their own workers' compensation liabilities. Self-insured employers guarantee these liabilities by posting security deposits that are adjusted annually. By not purchasing workers' compensation coverage from a carrier, employers save on workers' compensation costs because they do not pay for an insurance company's overhead and profit. After the first three years, self-insured employers may manage the claims themselves. They remain, of course, directly liable for any workers' compensation losses.

Typically, only large employers and public agencies have had the financial resources to qualify for self-insurance. Currently, 1546 private sector employers and 2,048 public agencies are approved to self-insure. These entities employ approximately 4.7 million Californians, or roughly one-third of the California workforce. Self-insurance covers nearly 2.4 million workers employed in the private sector and nearly 2.3 million people employed by public agencies.

Assembly Bill 110, the omnibus workers' compensation reform bill signed by Governor Wilson last July, amended the Labor Code to allow "groups of employers" to join together and self-insure. Regulations implementing the group self-insurance program became effective on July 1.

In order to self-insure, businesses must fall within the same industry, must submit an application to the Office of Self-Insurance Plans (SIP). Self-insurers must post a security deposit equaling the amount of workers' compensation claims for the past three years to secure the payment of claims. Additionally, they must fund in advance estimated benefit payments and claims adjustment expenses. Group self-insurers will meet these requirements collectively. Like current private self-insured employers, they also must submit audited yearly financial statements to SIP and submit to periodic additional audits.

"Workers' compensation costs in California totaled $11 billion a year before last year's reforms, and this high cost had a negative impact on California's economic competitiveness," Aubry said. "Group self-insurance offers one more approach to reducing workers' compensation costs."

Further information on group self-insurance is available from the Office of Self-Insurance Plans, 2265 Watt Ave., Suite 1, Sacramento, CA 95825. The telephone number is (916) 483-3392.

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