Report on Self Insurance Groups
Basic Anatomy of a Self Insurance Group
A self insurance group (SIG) is a group of employers organized into a legal entity approved by the State to satisfy the statutory obligations of the members to secure the payment of workers’ compensation.
The type of legal entity approved in California is a nonprofit corporation. The corporation is governed by a Board of Trustees which is responsible for all exercise of corporate powers and subject to fiduciary duties to the group. At least two-thirds of the trustees must be officers or employees of group members, and nobody with an interest in any of the group’s service providers can be a voting member.
The Board of Trustees employs service providers to perform a range of functions. The following descriptions include some of the prominent service provider roles and some of the prohibitions of conflict of interest.
The Program Administrator, also called the Group Administrator, typically conducts the day-to- day operations and financial affairs of the group, at the direction of the Board. The Program Administrator usually has a role in the selection, contracting, and continuing relations with the other service providers.
A Third-Party Claims Administrator (TPA) handles the claims adjusting function of the group, including estimating reserves on individual claims. Unlike some other states, California does not permit the Program Administrator to have a financial interest in the TPA.
An Actuary evaluates the group’s expected liabilities for purposes of setting the rates prospectively and evaluates incurred liabilities for the purpose of determining whether assets are sufficient to satisfy liabilities. The estimate of incurred liabilities also determines the amount of the group’s security deposit with the State.
An independent Certified Public Accountant (CPA) prepares an annual audit of the financial accounts and records of the group. California does not permit the Group Administrator to serve as the CPA.
Medical utilization review services and medical bill review services are contracted to work with the TPA.
Safety and loss control services can influence the results of a group. California does not directly regulate the group’s relationship with these service providers. Rule 15486.1 provides general qualifications.
An excess insurance carrier provides excess insurance coverage for any individual claim that exceeds the group’s retention level. California regulations specify a maximum retention level, which is also the practical minimum retention level, regardless of how large or small a group may be.