Self Insurance Explained: Requirements, Eligibility, and More

Self insurance can be a complex and confusing concept, but it's essentially a way for individuals or businesses to manage their own risk and financial losses.

In the United States, self insurance is allowed in some states, but not all.

To be eligible for self insurance, a business typically needs to have a large enough risk pool to make it financially viable. This usually means having a high volume of customers or a significant amount of assets to cover potential losses.

Self insurance can be a cost-effective option for businesses with low risk profiles, as it eliminates the need for expensive insurance premiums.

Security is a crucial aspect of self-insurance, with the Commission setting a minimum requirement of $200,000.

The security requirement is evaluated annually upon application for renewal of the self-insurance privilege, and may be adjusted based on information in the renewal application.

Employers that have been self-insured for three consecutive years and earn a total score of 18 on the financial ratios for three consecutive audited years are exempt from furnishing security.

Excess insurance is optional, unless the chairman requires it, in which case a policy of excess liability or catastrophe insurance must be obtained.

To obtain excess insurance, a self-insurer must submit a Certificate of Excess Insurance to the Commission via the Self-Insurance Plus (SIP) system.

To be eligible for self-insurance, a private employer must not be a government entity or a public authority. This means that individual employers, not group self-insured employers or government agencies, can apply to the Commission for authorization to insure their own workers' compensation liabilities.

A private employer must meet certain requirements, including demonstrating sufficient financial strength to meet workers' compensation obligations in a timely manner, and providing security as required by the Commission. To qualify for self-insurance, an employer must also provide interim financial statements as required by the Self-Insurers Advisory Board.

To apply for self-insurance, employers can file an application electronically through the IWCC's Self-Insurance Plus (SIP) system. This system provides step-by-step instructions for self-insurance processes, making it easier for employers to navigate the application process.

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Private employers, which are individual employers, are eligible to apply for self-insurance approval by the Commission. They must not be group self-insured employers or public authorities.

To qualify, an employer must demonstrate sufficient financial strength to meet workers' compensation obligations in a timely manner. This means they need to have enough financial resources to pay claims as they arise.

A private employer can apply to the Commission for authorization to insure its own workers' compensation liabilities. This involves filing an application and providing required security.

Here are the types of employers that are not eligible for self-insurance:

Public employers can choose to self-insure their workers' compensation liabilities. This can be a cost-effective option for them.

There are 396 individual public sector employers that have chosen to self-insure.

These employers often do so for reasons of cost effectiveness, greater control over their claims programs, and increased safety and loss control management.

Public sector self-insured employers can be found in Joint Powers Authorities (JPAs), pools of self-insured employers. There are 74 JPAs with 3,135 members.

Some public sector self-insured employers have a relatively small number of members, with 82 individual public sector self-insured employers and 11 JPAs with 171 members.

To receive self-insured status, public employers must qualify through an application process, meet specified financial requirements, and be approved by the Director of the Department of Industrial Relations.

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To maintain the self-insurance privilege, an employer must file an application each year in the Self-Insurance Plus (SIP) system. This application is a crucial step in ensuring the employer continues to meet the necessary financial and security requirements.

A self-insured employer must also provide interim financial statements as required by the Self-Insurers Advisory Board (SIAB). This ensures the employer is financially stable and able to pay benefits to injured employees.

To continue self-insuring, an employer must promptly pay benefits due to injured employees or their dependents. This is a critical responsibility that cannot be neglected.

Self-insured employers must also meet all assessment obligations in accordance with the Workers’ Compensation and Occupational Diseases Acts. This includes paying into the Self-Insurers Security Fund, the Second Injury Fund, and the Rate Adjustment Fund.

If an employer wishes to leave the self-insurance program, they must provide notice to the Commission. This allows the Commission to issue a certificate terminating the privilege on a date certain.

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A self-insured employer must also provide for the continuation of payment of current and future claims that occurred during the self-insurance period. This ensures that injured employees receive the benefits they are entitled to.

To voluntarily terminate the self-insurance privilege, an employer must provide evidence of workers' compensation insurance coverage. This is a necessary step in ending the self-insurance arrangement.

As a self-insurer, you'll need to pay various fees and provide security to ensure you're meeting your obligations. The Self-Insurers Security Fund requires private self-insurers to pay assessments up to a maximum of 1.2% annually based on compensation payments, excluding medical expenses.

You'll also need to pay statutory assessments, which are the same fees you'd pay through a traditional insurance policy, plus a couple of self-insurance specific fees. These fees are used to fund various funds, including the Workers' Compensation Administration Revolving Fund, the Uninsured Employers Benefits Trust Fund, and the Subsequent Injuries Benefits Trust Fund.

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Here are the specific fees you can expect to pay:

In some cases, you may be required to post a security deposit with the Self-Insurers Security Fund. This deposit is typically an amount equal to your projected losses, net of specific excess insurance coverage, and is determined by an actuarial study at the expected confidence level.

The Self-Insurers Security Fund will arrange and guarantee the collateral deposit requirements based on meeting credit standards for many self-insurers. For those that don't meet the Fund's credit standards, self-insurers are required to directly post their collateral security deposits with OSIP.

The deposit amount is determined by an actuarial study at the expected confidence level, and it must be an amount equal to the self-insurer's projected losses, net of specific excess insurance coverage, if any, and inclusive of incurred but not reported (IBNR) liabilities, allocated loss adjustment expense, and unallocated loss adjustment expense.

California Labor Code §3701(c) clearly states the requirements for the deposit amount, providing a clear guideline for self-insurers to follow.

Self-insurers who meet the Fund's credit standards have the benefit of the Fund arranging and guaranteeing their collateral deposit requirements, making the process much easier and less burdensome.

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As a self-insurer, you'll need to pay various fees to ensure compliance with the Workers' Compensation Act. These fees include assessments to the Self-Insurers Security Fund, Rate Adjustment Fund, Second Injury Fund, and Commission Operations Fund.

You'll also receive two invoices annually from OSIP and the Security Fund. The OSIP invoice covers the statutory assessments all employers pay. These fees include contributions to various funds such as the Workers' Compensation Administration Revolving Fund (WCARF) and the Uninsured Employers Benefits Trust Fund (UEBTF).

Here are some of the specific fees you can expect to pay:

These fees are typically paid annually, and it's essential to keep track of your payments to avoid any penalties or fines.