Report on Self Insurance Groups
History of Private Group Self Insurance in California
Self insurance groups (SIGs) in the private sector are a comparatively new phenomenon in California. Private sector employers in California must secure the payment of their workers’ compensation obligations either by obtaining workers’ compensation insurance or by obtaining from the State a certificate of consent to self insure. Since the early years of the workers’ compensation system, individual employers with sufficient financial capacity have been able to obtain the State’s consent to self insure. Public entities have also been permitted to self insure, either individually or in groups called joint powers authorities (JPAs) for decades. Private group self insurance, however, was not authorized by statute until 1993, and the first private sector SIG in California was approved effective January 1, 2002.
By the end of 2007, SIGs reported over $5.2 billion in covered payroll, nearly 6% of the total payroll covered by all private sector self insurance. There were 28 active SIGs in California as of February 2009, ranging from groups of three members up to a group of 743 members. One
SIG reported over $1.1 billion in covered payroll.
In 2007, SIGs paid an aggregate of
$21,610,856 in indemnity benefits and $28,786,674 in medical benefits.1 This growth has taken place under a statutory framework that added only a few words to the statutes governing individually self insured employers and under regulations that were likewise based largely on the regulations that were designed for individually self insured employers.
Both the market for group self insurance and the regulatory oversight of group self insurance are now undergoing a first stage of maturation. Some SIGs are closing or undergoing changes as their business models prove to be poorly suited to the current economic climate. An extensive overhaul of the regulations was adopted effective March 2, 2009, after more than three years of work by the Department of Industrial Relations (DIR) and its Office of Self Insurance Plans (SIP, commonly called ―OSIP‖). At the same time, other states with longer histories have provided examples of what can go terribly wrong when SIGs are not adequately regulated and supervised.
In the context of these changes, and mindful of the widely publicized failure of several large self insurance trusts in state of New York, the Chair of the California Assembly Insurance Committee requested this analysis by the Commission on Health and Safety and Workers’ Compensation (CHSWC).
Sources: Office of Self Insurance Plans website and e-mail correspondence 1/8/2009.