A self insured employer is one who self insures their workers’ compensation liabilities. If you are one such employer, you are not alone: California has the largest workers’ compensation self insurance program in the nation. As of January 1, 2014, nearly 10,000 California employers were actively self insured.
Employers may choose to self insure their workers’ compensation liabilities because it can be cost effective, allow the employers greater control over the claims program, and increase safety and manage loss control. Many employers contract with a third party administrator to supervise claims and perform other tasks. The alternative to self insurance is purchasing a workers’ compensation policy. Learn more about workers’ comp basics here.
Employers wishing to receive self insured status must qualify through the state’s application process, as well as meet specified financial requirements and be approved by the Director of the Department of Industrial Relations. The application process takes about 30 days for a new employer applicant. During that time, the Office of Self Insurance Plans reviews the application to determine the employer’s financial strength, benefit delivery system, and suitability to be self insured.
Requirements for self insurance
The three requirements for an organization to self insure are:
– Have $5 million in shareholders’ equity;
– Average net profits of $500,000 per year during the last five years; and
– Provide certified, independently audited financial statements.
Subsidiaries of companies that self insure must file a separate application, although they may apply with the parent company and use the same application form. Companies are allowed to use group self insurance in both the public and the private sector.
Scope of self insurance benefits
Self insured employers are required to provide the same scope of benefits as an insurance company. This means claims must be adjusted in California, and new self insurers must use a licensed third-party administrator for their first three years of self insurance. Self administration is allowed after that time.
Required audits and evaluations
The Division of Workers’ Compensation conducts audits of both insurers and self insurers to make certain that benefits are promptly and properly paid to injured workers. The Office of Self Insurance Plans also conducts audits of self insurers to verify the accuracy of claims reserving practices and the correctness of reported workers’ compensation liabilities and performs an administrator’s exam each year of those persons who handle workers’ compensation claims. If a third-party administrator or agency handles self insured claims, it must be licensed with the Office of Self Insurance Plans.
Finally, the Office of Self Insurance Plans requires an evaluation of a self insured employer’s injury and illness prevention program. The compliance inspection is conducted by a private, independent, registered professional safety engineer, certified industrial hygienist, or certified safety professional. The self insured employer must at a minimum comply with Cal/OSHA safety and health regulations.
As this article suggests, a self insured must take several specific steps in order to be compliant with state law. To discuss your situation with an experienced business lawyer, contact Drew E. Pomerance today.
