Report on Self Insurance Groups
This report is prepared in response to the October 6, 2008 request by Assembly Member Joe Coto, Chair of the Assembly Insurance Committee, as shown in Attachment A. Mr. Coto requested that the Commission on Health and Safety and Workers’ Compensation analyze the statutory and regulatory oversight of workers’ compensation self insurance groups and make recommendations to ensure the viability of these programs. This report finds that California already has substantial protections in place, but further improvements can strengthen the program. Statutory and regulatory changes are recommended.
Summary of Findings and Recommendations
Self insurance groups have the potential to serve the interests of California employers and employees by promptly providing workers’ compensation benefits to injured workers at reasonable cost while enabling and encouraging employers to improve safety and provide the earliest appropriate return to work for injured employees.
Self insurance groups also have the potential to drive up costs and disrupt the delivery of benefits when poorly managed. At the least, the members or former members of an underfunded group may be exposed to unexpected costs to make up for the shortage. At worst, responsibility for payment of a failed group’s obligations may be shifted to employers who were not connected with the failed group, and benefits to injured workers may be interrupted and delayed during the collapse of the group.
The purpose of this report is to review what legislation or oversight might be needed to preserve group self insurance as an option for eligible employers and to assure that the risks are held to a reasonable minimum. California already has regulations designed to protect against the most obvious risks of financial failure and default by self insurance groups. This report recommends additional steps for improved solvency, security and oversight.
Since the time private group self insurance was first authorized in California, this state had protections against fiscal mismanagement superior to most states:
Program administrators have never been permitted to act as claims administrators.
Funding for loss reserves has always been required at a higher confidence level
than required elsewhere.