Report on Self Insurance Groups
Summary of Regulatory Provisions
A self insurance group (SIG) must be organized as a nonprofit corporation (Rule 154708), governed by a board of trustees (Rule 15475). The SIG must obtain Certificate of Consent to Self Insure, and each member receives an Affiliate Certificate of Consent to Self Insure. Each member must agree to joint and several liability for the workers’ compensation obligations of all the other members.
The confidence level is an expression of the probability that an estimate of losses will be at least equal to the actual losses. Absolute certainty is not feasible. California SIGs are required to use higher confidence levels than are used in the insurance industry.
Actuaries attempt to project the ultimate losses by a variety of methods. Because of the various uncertainties in these processes, the actuarial projection of the ultimate loss is stated as a range.
Payment of the workers’ compensation obligations of the members is made by the SIG from the SIG’s assets. The assets derive from the payment by the members for their coverage. The rates for these payments are not directly regulated, but the amount collected must be adequate to fund the SIG’s liabilities estimated at an 80% confidence level. Accounting is required by program year, with funding
A 50% confidence level would be the number which is equally likely to be too high or too low. The insurance industry uses the ―expected‖ loss, which is somewhat greater than a 50% confidence level. This estimate is more likely to be adequate than inadequate. There is a substantial chance of any given year’s losses being underestimated, and there is only a limited margin for error to balance out from year to year. Insurers are required to have certain levels of capital and surplus to help cushion against unexpectedly high losses.
California requires that SIGs must be funded at the 80% confidence level, meaning that the actuarially projected losses will exceed actual losses eight out of ten years and fall short only two out of ten years, on the average.
separately for each program year. As of March 2, 2009, the funding must include unallocated loss adjustment expense (ULAE), so the sufficiency of the funding to administer all incurred
claims should no longer rely remaining a going concern
a SIG future
years. in the
A SIG must correct any deficit required funding level by some
means. Transfer other program
Assessments compelled by
to correct a deficit. (Rule 15477.)
A SIG is required to keep a deposit with the Director of the Department of
8 All references to Rule numbers are to sections of Title 8 of the Code of Regulations, as amended through March 2, 2009. Self insurance regulations are in Subchapter 2, Articles 1 (beginning with Section 15470) through 13.