Report on Self Insurance Groups
Limit the return of surplus contributions. Previously, distributions were restricted only if they would cause insolvency. New rules in New York allow return of surplus beginning two years after end of fiscal year, and then only allow 25% of surplus to be returned per year.
At the close of our conversation in October 2008, the New York regulator observed that contrary
to popular perceptions, the state had not experienced a total melt down. approximately 60 groups, most of them healthy.
There were still
It appears that problems have continued to unfold following that conversation. A CHSWC staff count of the groups reported on the New York Workers’ Compensation Board website in March 2009, observed that out of 65 groups, only 22 were operating with no fiscal issues and no restrictions. Another 13 groups have no fiscal issues but have voluntarily terminated and are in runoff. The other 30 groups all have some sort of fiscal issues:
Seven are underfunded have been terminated, one of these with an assessment on the former members.
Thirteen are underfunded and operating under restrictions.
Ten are insolvent and their members are being assessed or sued for collection of the group’s deficits.
Evidently, many New York groups were headed for trouble long before most California groups were created. It can take years for the consequences of inadequate oversight to unfold, and the damage can progress inexorably despite the insights of the current regulator. There is little comfort in the arguments of some California SIGs that there has never been a SIG failure in this state.
On the other hand, there is comfort in the fact that California regulations from their beginning
have reflected many of the lessons learned in states with years of experience.
prohibits a group administrator from acting as the group’s claims administrator, requires year- specific accounting, requires actuarial reports and audited financial reports, restricts the investment of funds, requires a security deposit of 135% of expected future liabilities, and requires each group to carry funding at a high confidence level. The most serious mistakes of other states have been already been avoided, and at this early stage in California’s history of group self insurance, it is not too late to correct the smaller vulnerabilities that remain.
The first lesson learned by comparison to other states is that California has gotten group self insurance off to a good start.