Becoming A Member
Employers wanting to self-insure their workers’ compensation liabilities must first apply to the State of California, Office of Self Insurance Plans (OSIP) for approval.
The private-sector application process for a new employer (not currently self insured in California) usually takes about three to four months. During that period, OSIP evaluates the application to determine the applicant’s financial strength, proposed benefit delivery system, and loss prevention program.
Current regulatory financial requirement minimums for an organization desiring entry into self-insurance are:e:
- $5.0 million shareholders’ equity
- Average net profits of $500,000 per year for the last five years
- Certified, independently audited financial statements
Based on the information provided and an organization’s financial health and status, Fund members will fall into one of two major categories: (1) Participating in the Alternative Security Program (ASP); or (2) Excluded, which requires the posting of a deposit (collateral) to cover the entity’s estimated future claim liabilities.
The ASP participating category is the most desirable because members do not need to post collateral or tie up their credit line posting a letter of credit. The ASP serves as a composite deposit that is funded through annual participant assessments that are in lieu of the costs associated with each entity otherwise having to post collateral with SIP by posting cash, securing a letter of credit or surety bond to secure its required on-going deposit.
The assessment for FULL members is generally the highest since it includes two components: (1) the entity’s share of risk transfer (hedging) costs (Excess Liability Protection); and (2) as its share of the Default Loss Fund contribution. PARTIAL members have left self-insurance but have sufficient credit rating (A or B) to have most of their open claim liabilities from self-insurance (the tail) covered by the ASP.
There are three distinct sub-categories of EXCLUDED: (1) New members seeking entry into the ASP category (2) Self-insured groups, such as associations representing a collection of similar businesses (3) Organizations considered credit risks. Excluded entities are assessed their share of the Default Loss Fund target amount each year.
The following table highlights the major requirements, considerations and factors that determine a member’s category of eligibility; it also provides a general overview of each category’s level of assessment:
| Category | Requirements & Contributing Factors |
Assessment Level | Benefits |
|---|---|---|---|
| ASP Members | Minimum bond rating of B | Highest | Better rates Cost efficiency No requirement to post collateral |
| Non-ASP: New Members | They meet self-insurance eligibility but must wait three years (Regulatory requirement) before eligible for the ASP unless the Fund Board recommends earlier inclusion in the ASP | Low | Opportunity to join the ASP (July 1 plan year) if and when credit rating meets eligibility requirements |
| Non-ASP: Groups | Low | Discuss | |
| Non-ASP: Credit Risks | These members are excluded from ASP and post a deposit representing 135% to 200% of the estimated future liabilities with SIP | Low | Discuss |