Report on Self Insurance Groups
natural posture of even the best-run SIGs is to advocate light oversight by regulators. The collective expertise of SIGs, in an environment where they are directly concerned with the financial integrity of their fellow SIGs, will probably generate valuable recommendations for high standards and strict oversight.
This dynamic was described by the NAIC Self-Insurance Regulator’s Handbook (2005,) in the context of individually self insured employers:
Individual self-insured employers may argue against the imposition of security requirements or try to reduce their level. Representatives of self-insured employers (e.g., guaranty funds or advisory bodies) commonly take the opposite stance. All self-insurers may bear the cost of defaults on claims obligations from other self-insureds in a given jurisdiction. They tend to lobby for strict requirements for the right to be self-insured and security instruments for firms without exceptionally strong financial statements.
The same dynamic was demonstrated in a meeting involving most of the California SIG administrators in April 2009. When the question was posed whether to immediately put all SIGs into a separate security fund, participants quickly expressed concerns about what kind of risk they would be taking on, whether other SIGs carried appropriate reinsurance, not knowing what other SIGs ―look like,‖ and wondering how to assess the financial standing of other SIGs. These are exactly the questions that the regulators and the security fund must address.
A risk-sharing pool that concentrates on SIGs would foster the development of effective and practical standards to assure the financial integrity of all SIGs. It may not be feasible to put SIGs into a separate account for some time. CHSWC is recommending that the Director have the authority, not that the authority be exercised hastily. The discussions and analysis in preparation for this evolution will contribute to improving the standards for SIGs.
Rate regulation is one of the techniques used by insurance regulators that could be applicable to group self insurance. CHSWC staff reviewed the rates charged by a selection of SIGs and found that the majority were within the range of rates charged by insurance carriers. Some rates were below the pure premium recommended by the Insurance Commissioner. These low rates may be appropriate, but they raise concerns. Very low rates may be justified by the results of careful underwriting and exemplary safety, claims management, and return-to-work practices. With the very short history of group self insurance in California, however, it is questionable whether most
groups have sufficient experience to
warrant large reductions from based on wishful thinking are
of the reason
insolvencies in other states.