Report on Self Insurance Groups
Lessons Learned from Others
New York State has a long history of group self insurance leading up to some well-publicized failures. A task force was appointed to recommend reforms for that state’s group self-insured trusts. As of September 1, 2009, the New York task force did not have a timetable for when its report would be prepared.2 The Director of Self Insurance for the State of New York Workers’ Compensation Board, however, generously shared her informal impressions with CHSWC staff when work on this CHSWC report began in October 2008:
Require actuarial opinions. accounting principles (GAAP)
Financial statements according are not sufficient by themselves,
generally accepted the loss projections
can be poor. Actuaries reports. Proposed New three years.
acting on behalf of group administrators can produce misleading York regulations will require independent actuarial review every
Require year-specific accounting. It would have made wholesale change in reserves apparent sooner, and it would have made the suppression of loss reserves harder to hide.
Restrict what is acceptable as an asset to cover the liabilities, particularly receivables. Also watch for unrealistic discount rates on future liabilities.
Some groups were financially troubled for years and failed to take adequate corrective action. Groups only wanted to correct deficits by adjusting rates going forward. Deficits grew until the rates they would have had to charge would have been prohibitive. New rules may require that members for a given fiscal year will be billed immediately to fund a deficit in any fiscal year.
Watch the reserve pick. Incremental adjustments to reserves are not alarming, but sudden large changes should not become necessary if the reserve pick is realistic.
Do not underestimate the importance of an active board of trustees.‖ Many problems
were attributed to groups that were broker-driven. The regulators learned not to meet with a ―group‖ unless at least some trustees were present. Watch for conflict of interest
when the group administrator is being paid a percentage of annual regardless of how well or poorly the group is funded. Conduct trustee annual meetings with the regulators to emphasize fiduciary responsibility.
contributions training and It would be
good to have administrator,
licensing for group administrators not just against the group.
Require filing a rate plan 90 days before it becomes effective. When New York began asking for the rate plans, some groups could not furnish a rationale for their rates.
2 ―WCC: Group Trusts Remain a Problem‖ reprint from workcompcentral.com, September 1, 2009. http://www.allbusiness.com/government/government-bodies-offices-regional-local/12841865-1.html