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More California employers are diving into self Insurance pools
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Source: Los Angeles Business Times
Written By: Howard Fine
More and more California employers are diving into pools. They’re not swimming, though. They’re getting workers’ compensation insurance.
Taking advantage of a provision of the 2003 workers’ compensation reforms, they’re seeking lower rates and better service by self-insuring in industry groups.
Take Chip Kurzeka, owner of Franklin’s Hardware in Woodland Hills. Not only has his premium dropped 10 percent in the four years since he jumped into a pool with other home improvement businesses, but sometimes he gets a refund. That happens when the pool finishes the year with more money than required by state law.
“We’ve been very pleased with this program,” Kurzeka said.
These self-insurance pools give employers more control over how claims are handled and can keep a lid on costs. But it can be risky. If claims costs increase for those in the self-insured group, state law requires the members to put in more money to ensure the pool remains solvent.
In traditional workers’ compensation insurance, employers purchase coverage from insurance companies, sometimes using a broker to find the best deal. But in a self-insured pool, each employer member puts its own money into the cooperative and a third-party administrator oversees the handling of claims.
Over the last six years, businesses have grouped to form nearly three dozen of these pools in industries from trucking to auto dealerships to credit unions and private secondary schools.
However, six pools have voluntarily disbanded because the employer members didn’t want to make additional contributions to meet the state requirement of 135 percent of the anticipated cost of claims. And in a seventh pool, made up of building contractors, claims hit the point where the state had to bring in a conservator to run the pool until it could be disbanded and all the members could find other workers’ compensation coverage.
But that risk has not deterred employers from joining self-insurance groups. Since 2005, the number of employers participating in these groups has tripled, topping 2,500 last year, according to figures from the state Office of Self Insurance Groups, a unit of the state Department of Industrial Relations. Much of that growth took place despite a steep drop in overall workers’ compensation premiums that resulted from the 2003-04 reforms. In the last year, premiums have bottomed out and, in some high-risk industries like construction, have started to rise again.
