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Report on Self Insurance Groups - page 26 / 40





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Report on Self Insurance Groups

accreditation program11

for JPAs, which are the public sector equivalent of SIGs. That program

may be informative or adaptable to the private SIG environment. suggestions that the accreditation program incorporate elements of the 2002 and that it include requirements for SAS 70 audits. Evaluation beyond the scope of this report. Other resources and public input should

CHSWC has received Sarbanes-Oxley Act of of these suggestions is be considered.

Security Fund Structure

It is recommended that the Legislature authorize the Director to approve separate accounts within the Self Insurers’ Security Fund for self insurance groups and for stand-alone self insured employers, and to allocate liabilities between the accounts.

At present, SIGs are in the Self Insurers’ Security Fund (SISF) under the jurisdiction of the Department of Industrial Relations. The California Insurance Guarantee Association (CIGA) is the only other workers’ compensation security fund in California, but it is under the jurisdiction of the Department of Insurance and does not include SIGs. Neither fund is a perfect fit for SIGs, but SISF is where they are now, and it is where they best fit unless a separate fund or account is created for them.

There are good reasons to place SIGs in a separate account or fund, but based on discussions among SIG program administrators and SISF representatives, establishing and managing a separate security fund for SIGs would not be practical at this time. A separate account for SIGs within SISF might become feasible within the next year or two, but until that has been determined, SIGs should remain in SISF as currently structured.

In light of the differences between SIGs and individually ―self insured‖ (actually, self funded) employers, ongoing consideration should be given to placing SIGs into a separate account within SISF. A separate account would allow each risk pool to be made up of employers (or groups) that have adopted similar programs for workers’ compensation rather than share a risk pool with employers (or groups) that have less in common with themselves. A separate fund or a separate account would facilitate development of distinct techniques for evaluating and responding to the risks that SIGs bring to their security fund. Furthermore, the pooling of risk among SIGs in a separate account will have the salutary effect of promoting higher standards for SIGS.

The reason a separate fund or account would promote higher standards for SIGs is that each SIG would have a stronger interest in the assuring the financial integrity of all SIGs. Any SIG’s stake in the solvency of other SIGs is diluted when SIGs comprise only 6% (by payroll) of the SISF pool. A SIG has more to fear from the default of a large individually self insured employer than from the default of another SIG. Not being particularly invested in the fate of other SIGs, the




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