California law requires private businesses and organizations to obtain and maintain no-fault workers’ compensation insurance coverage for their employees. Employers can join the state’s workers’ compensation system by purchasing a legally compliant policy, or they can opt to operate as a “self-insured” employer. Below, our Sacramento workers’ compensation defense attorneys offer a guide to the key things that employers should know about self-insurance in California.
What is Self-Insurance in Workers’ Compensation in California?
Self-insurance in workers’ compensation in California refers to the practice of an employer choosing to provide their own insurance coverage for their employees’ work-related injuries or illnesses rather than purchasing coverage from an insurance company. Employers who opt for self-insurance must meet certain requirements, including demonstrating financial stability and maintaining reserves to cover potential claims.
Many Employers Opt for Self-Insurance (Two Options Available)
There are two ways for employers to become self-insured in California. They can prove that they have sufficient assets and insurance solely on their own. Alternatively, they are a private industry-specific self-insurance group. Many employers in our state are currently opting for self-insurance. The Department of Industrial Relations (DIR) reports that 6,939 California employers were actively self-insured for workers’ compensation as of January 1, 2023.
Understanding the Requirements to Be a Self-Insured Employer
A private industry employer in California cannot simply declare itself to be self-insured. There are specific legal requirements that must be followed. Employers must complete and submit an application to the California Office of Self-Insurance Plans (OSIP). As part of that application, an employer seeking to self-insure will be required to demonstrate the following:
- At least three years of continuous business operation;
- Three years of financial statements (audited by an independent professional); and
- An acceptable business credit rating for at least three years.
Know the Advantages and Disadvantages of Being Self-Insured in California
Self-insurance in California can provide employers with certain advantages in workers’ compensation coverage. One of the main benefits is cost savings. By self-insuring, employers can eliminate insurance company overhead costs, which can significantly reduce premiums. Additionally, self-insurance allows employers to have more control over the claims process, which can lead to faster resolution and cost containment. Self-insured employers may also benefit from increased flexibility in choosing healthcare providers and treatment options for their employees.
At the same time, there are also several disadvantages to self-insurance in workers’ compensation. Self-insured employers are at greater risk of financial losses in the event of large or unexpected claims. Additionally, self-insured employers are responsible for managing the claims process, which can be time-consuming and complex. This requires the employer to dedicate resources to claims management and related administrative tasks. Self-insurance is also subject to greater regulatory scrutiny, with increased reporting requirements.
Speak to Our Sacramento Workers’ Compensation Defense Lawyer Today
At Yrulegui & Roberts, our Sacramento workers’ compensation defense attorneys have the skills, experience, and proven expertise to represent self-insured employers. Reach out to us by phone or contact us online for your strictly private, no-commitment case evaluation. Our law firm provides workers’ compensation defense representation in Sacramento and throughout North Central California.