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Report on Self Insurance Groups - page 4 / 40





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Report on Self Insurance Groups

California has, as of March 2, 2009, adopted regulations which will enhance regulatory oversight and protection against the problems that have occurred in other states:

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    The new regulations prohibit certain additional conflicts of interest among service providers and require disclosure of certain other conflicts.

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      Requirements for funding loss reserves are applicable separately to each and every program year.

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      Requirements for funding loss reserves include unallocated loss adjustment expense.

The regulatory system is not as strong as it could be to manage the risk of defaults:

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    The regulatory office does not have sufficient expert resources to examine the actuarial and fiscal integrity of self insurance groups (SIGs).

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      The Self Insurers’ Security Fund (SISF) does not have access to information needed to identify and mitigate the fund’s exposure to risks of default by SIGs.

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      There are no minimum qualifications required for group administrators.

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      Disclosure of SIG financial condition to prospective members is not currently required.

If the regulator and SISF have access to adequate information, if SISF has the ability to trigger enforcement or corrective action by the Director, and if prospective members are provided with appropriate information, then public disclosure of SIG financial information is not likely to further enhance the security of SIGs for participating employers, for the injured employees of participating employers, or for the security fund. Provisions of the Corporations Code prohibiting distributions by nonprofit corporations are arguably in conflict with the practice of SIGs that return surplus contributions to members in the form of dividends or refunds.

Legislative Recommendations:

Authorize SISF, upon approval by the Director of the Department of Industrial Relations, to create separate accounts within the fund for SIGs and for individually self-insured employers and to allocate expenses and liabilities between the two accounts. Authorize SISF as well as the Director to conduct or obtain independent audits and examinations of any aspect of the books and operations of SIGs. Authorize the Director and SISF to share confidential information with each other. Provide that if SISF recommends corrective action or enforcement action, the burden of proof shall be on a SIG to demonstrate to the Director that its estimates of future liability are adequate and that it is in compliance with statutory and regulatory requirements. Confirm that member financial records are confidential and shall not be disclosed by the Director either publicly or to SISF. Provide that financial and actuarial information obtained by the Director or SISF is exempt from public disclosure, except that aggregate or statistical information that is not


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