Frequently Asked Questions

Posted by admin at 2:43 PM on Nov 10, 2017


What is Self-Insurance?

California has one of the largest workers' compensation self insurance programs in the nation. As of January 1, 2011, a total of 7466 California employers were actively self insured.

Rather than purchase insurance, these employers choose to self insure their workers' compensation liabilities to cover their employees for reasons of cost effectiveness, greater control over their claims programs, and increased safety and loss control management.

The success of a workers' compensation self insurance program is often dependent upon the effectiveness of loss control activities and claims supervision. Most self insured employers contract with third-party administrators to perform some of these services, while some qualify to self administer their claims administration.

An employer must qualify for self-insured status through an application process, meet specified financial requirements, and be approved by the Director of Industrial Relations.

What are Self-Insurance Groups?

Self Insured Groups are regulated alternatives to traditional insurance that are approved by the State of California to provide workers’ compensation benefits to member employers. A self insured group is a California Not-for-Profit Mutual Benefit Corporation run by a Board of Directors.

Self-insured groups are cooperatives of like kind and quality employers, per California regulations, which pool the money they would typically give to an insurance company so they can have greater control over how that money is used. Each self insured group is reviewed, approved and monitored by California’s Department of Industrial Relations Office of Self Insurance Plans. Just as each self insured group is reviewed and approved, each member of a self insured group is similarly reviewed to ensure that individual employers meet the requirements of membership. A self insured group is a “shared-risk” pool, with joint and several liability among members.

Each member pays into the pool according to their own payroll and experience, just as they do with an insurance company. The pool absorbs the costs of all members. If a member has poor claims experience during a year, it is absorbed by the pool. A member does not need to pay “extra” because they individually have had a bad year. Certified actuaries are used to predict losses and to support the development of rating plans that will fund the group correctly.

How does Self-Insurance work?

  • With self-insurance, the employer or group of employers, set aside prescribed funds to cover costs for workers' compensation administration, payment of benefits, claims management, loss control, managed care and excess insurance.
  • Workers' compensation contributions (premium) are computed based on the expected losses for the group and then a budget allocation for expected workers' compensation losses. Investment income is also earned on the funds.
  • The employer, or Board of Trustees, selects a firm known as a Third Party Administrator (TPA) to provide claims and medical management services.

How do you become Self-Insured?

For the Requirements and Application process for becoming Self-Insured, see the Self Insurance Plans webpage at the California Department of Industrial Relations website.