Report on Self Insurance Groups
specifies the content of the actuarial report and requires the actuarial analysis to be conducted annually.
Regulations do not expressly require the filing of rates and do not require that rates be subject to approval. Estimated losses are discounted to present value, and the regulations do not specify criteria to approve or disapprove the discount rate that may be adopted by an actuary or accountant. In some SIG records reviewed by the Commission on Health and Safety and Workers’ Compensation, the discount rate was much more optimistic than in others.
Regulatory Resources and Expertise, Access to Information
California regulations now require annual actuarial and independent certified financial statements, but the Office of Self Insurance Plans (OSIP) does not have the resources to interpret and evaluate those financial and actuarial reports.
The regulations establish the qualifications for the actuary and accountant and prohibit conflicts of interest of the accountant. The actuary, however, may have a financial interest in the program administrator. The value of imposing any additional protections against conflict of interest is open to debate. Despite the present high standards, there is always a risk that an actuarial or financial report will be mistaken, biased, or willfully misleading. OSIP staff has commendable experience and skill, but not the formal training and expertise that are needed to challenge errors, biases, and falsehoods that may be present in these technical reports. OSIP needs the benefit of a critical review by a qualified expert for every financial and actuarial report.
OSIP could secure these services by contracting with one or more accountants and actuaries to review the reports submitted by self insurance groups (SIGs). OSIP can already require an
independent examination at the reports to indicate when to arrangement with accountants
expense of a SIG, but it needs more continuing evaluation of the
impose these and actuaries
outside reviews. to conduct audits
of SIGs when
necessary in the Manager’s discretion. actuaries to conduct preliminary reviews have a better basis for the exercise of that
OSIP should also of reports submitted discretion.
have access to by SIGs so that
accountants the Director
The Self Insurers’ Security Fund (SISF) should be allowed a larger role in the review of SIGs for two reasons. SISF has the expertise and the resources to assist the regulator by recognizing potential problems and bringing them to the attention of the regulator. Furthermore, SISF would have the opportunity to assure that the regulator is properly carrying out the regulatory functions. It is appropriate for SISF to be the ―extra set of eyes‖ on the regulation of SIGs because SISF is the entity that stands at risk to guarantee payment of benefits if a SIG defaults. Accordingly, CHSWC recommends that SISF be granted all necessary authority to conduct claims reserve audits, financial and operational audits, and actuarial reviews of SIGs, subject to confidentiality