Self-Insurance Groups in California A Growing Trend and Opportunity for Employers to Purchase Insurance “at cost”! by Norm Hainlen Over the last several years, the California workers’ compensation market has been on a roller coaster ride of skyrocketing rates, soaring to record levels, only now to see declining rates that rival those of 1995-96. To help mitigate the alarming rate and premium increases of only a few years ago, legislation was passed to help contain rising claims costs, thus starting the cycle of declining rates. While employers have been rewarded with a couple years of short term relief, we all know rate reductions will soon cease and turn the other direction. As they have historically, plaintiff attorneys have found the loopholes they’ve sought to increase claims costs and attack many of the savings realized by employers. The inevitable upswing in rates is on the horizon and now is the time to prepare for more stable alternatives. While the workers’ compensation market is constantly cycling and in turmoil driven by unpredictable politics, applicant attorneys and potentially unstable legislation, many knowledgeable employers are or will soon be looking for stability and long-term control. Companies have long dreamt of alternatives to conventional guaranteed cost insurance programs with traditional knee-jerk insurance companies. They realize they must gain full control over this mandated cost of doing business. Most, however, aren’t aware of one of the most viable options currently available – California State regulated and approved Group Self-Insurance Programs. The State of California’s Department of Industrial Relations, Department of Self Insurance Plans (SIP) regulates self-insurance and affords qualified companies the ability to group together to insure their workers’ compensation coverage. The many advantages this concept offers include: • Significant long-term savings over traditional insurance. • Rate and coverage stability. • The group’s board of trustees and members have full control over the process, leading to overall long-term reductions in workers’ compensation costs. • Each group mandates its own underwriting criteria and member performance standards, including control over new membership in the group. • Groups enjoy efficiencies and lower operational costs than insurers. • Formal Safety/Loss Control programs are a required and crucial part of process. • Excess insurance coverage provides protection for catastrophic events. • Regulations permit the group to disburse dividends or extend rate relief to members if funding (surplus) exceeds the fixed costs and claims expenses. • The members own 100% of the group surplus, including interest income. Every component of the process grants the group opportunities to manage costs, resulting in major savings for a growing and required expense of doing business. In essence, members “own” the group and are intimately involved in its management, reaping the rewards generated by the group. Companies (at least two) may form a group in California when: • companies have the same governing two-digit SIC Code. • they are properly licensed to do business in California. • they demonstrate combined a net worth over $5,000,000 with a combined annual net income of at least $500,000. Evidence of financial strength must be supported by independently audited or, once the group’s net worth exceeds $10,000,000, reviewed financial statements. Once the group is approved and the new corporate entity is established by the State of California, it operates with well-defined underwriting and marketing plans allowing organizations within its governing SIC Code to join as a member. The goal is to grow the group with “best-in-class” members to ensure the longevity and profitability of the group. Building the group with “clean” members assures continued low rates and affords the group members extremely focused risk management services. Though self-insurance may be a new concept to and a previously unavailable alternative for middle market companies, self-insurance in varying forms are “standard operating procedure” for larger companies and has been for decades. Grouping promotes tremendous buying power that now is no longer the exclusive bastion of only the country’s largest employers. The bottom line is, for qualified employers, Group Self-Insurance provides middle market employers the most efficient way to manage workers’ compensation costs. It offers the control necessary to maintain the highest level of standards for underwriting, claims management and loss control services, while returning the profits in the group members and not the insurance carriers. Quoting Jerry Cooper of BizAssure, “Better to own your workers’ compensation program rather than rent it from someone else!” Group Self-Insurance offers the best opportunity for middle market companies to exercise such ownership. For more information regarding Group Self-Insurance contact Jerry Cooper at 800-549-7827 or email@example.com.
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