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Report on Self Insurance Groups - page 25 / 40





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Report on Self Insurance Groups

  • Audits‖ by OSIP generally focus on claims operations, and other references to ―audit‖ in the

OSIP regulations generally refer to audited financial statements. Standard GAAP financial reports for non-profits do not require the independent assessment of risk. OSIP should consider adopting more expansive audit requirements to address the particular circumstances of SIGs. One commenter has suggested the National Association of Insurance Commissioners (NAIC) Model Audit Rule, which is said to make all affected companies comply with Sarbanes-Oxley requirements regarding internal controls. Sarbanes-Oxley is reputed to have been effective at making top executives take responsibility for the operations of their companies. A similar requirement could have a salutary effect on the practices of SIG administrators and trustees.

Licensing of Program Administrators

The foregoing recommendation raises another gap in the regulatory structure. While TPAs must be licensed, there is no regulation of who can be a group administrator. The group administrator has a key role, and when unprincipled individuals are in that position, the group administrator can cause untold damage to members and to whomever has to pick up the pieces.

CHSWC staff and consultants have observed that some group administrators run deficits in multiple groups under their management. CHSWC staff and consultants have observed that some group administrators profit from conflicts of interest that other administrators deemed were unethical even before those practices were prohibited. CHSWC staff and consultants have observed that some group administrators employ accountants and actuaries whose opinions push the boundaries of reasonableness.

CHSWC recommends that standards for group administrators should be set, and that when a group administrator consistently violates the standards of practice or engages in prohibited behaviors, the group administrator and its principals should be barred from any role in California self insurance groups.

CHSWC recommends that the Director promulgate regulations to establish qualifications for licensing of SIG administrators and to impose progressive disciplinary measures up to and including loss of license for severe or frequent misconduct.

As will be discussed elsewhere in this report in relation to the advantages of a separate security fund account, the regulated community as a group can be the source of high standards that individual members of the community might otherwise disregard. The Director may be able to take advantage of that process by tying the licensing of group administrators to accreditation by a professional association or by incorporating standards articulated by a professional association of group administrators. The California Alliance of Self-Insured Groups (CA-SIG) may serve as

the forum California

for SIGs and their administrators to articulate appropriate Association of Joint Powers Authorities (CAJPA) has

qualifications. The a risk management


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