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Reviewing the potential benefits of self-insuring

It may be well-known amongst employers in Los Angeles that all companies in California that have more than one employee are required by law to carry workers’ compensation coverage. However, many business owners may find the cost to secure such coverage to be prohibitive. Those who carry workers’ compensation insurance soon discover have no control over the cost they pay in premiums. Yet many believe state-sponsored plans to be their only option if they want to be in compliance with the law. There are, however, other options that allow one to protect his or her company’s employees without being at the mercy of restrictive and unfavorable state-sponsored plan rules.

One such option is to self-insure. This can mean either controlling claims in-house or subcontracting this service to a third part administrator. As the Self-Insurance Institute of America points out, such a move allows a company to control costs by paying claims as they are incurred. As an added bonus, it offers one’s employees greater access to timely care. Yet it also points out that by self-insuring, companies take a greater financial risk by accepting having to pay workers’ compensation claims for employees.

It is for this reason that, according to the California Department of Industrial Relations, companies wishing to self-insure in the state must first be given approval. The criteria required for such approval includes:

  •          Having a net worth of $5 million or more  
  •          Having a net annual income of more than $500,000
  •          Posting a security deposit

Compared to the hassles that may be inherent with carrying standard workers’ compensation coverage (as well as the risk that comes with not carrying insurance), however, seeking approval to self-insure may be advantageous. Indeed, the DIR reports that currently over 7,100 employers in the state are self-insured. 

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