Self-insurance versus traditional workers’ compensation

Our state is leading the nation in workers’ compensation self-insurance programs. As of the beginning of this year, over 7,000 California employers now are self-insured. As such, understanding the difference can be important.

The numbers

According to the California Department of Industrial Relations, Office of Self-Insurance Plans, the total number of self-insured employers in 2021 is actually 7,152. In addition, as of 2019, this accounted over $120 billion in payroll and covered nearly 2.5 million Californian workers. Of these companies, they have paid nearly $1.5 billion and have nearly 80,000 open workers’ compensation cases.

Why companies are making the switch

Many companies believe there are significant benefits, but mostly they believe it provides better cash flow and cost savings over traditional workers’ compensation. When companies self-insure, they also design and control their own program to meet the needs of their business. As our employee readers may have inferred, this means they might be able to make the workers’ compensation system harder to access for their employees.

Traditional workers’ compensation programs

Otherwise known as a guaranteed-cost policy, a traditional workers’ compensation program covers all employer workplace liability for a fixed annual payment to a third-party insurance carrier. This price reflects the insurance company’s accounting for all known and possible risks, as well as the costs associated with marketing, administration, overhead and a profit margin. These later costs alone account for nearly 40 percent of insurance premium costs. For most companies, they see that self-insurance can therefore save them at least 40 percent.

Self-insurance workers’ compensation programs

This is a program where an employer takes on the financial risk of all workplace liability. This means that the company now makes all decisions, including selecting the third-party administrator and how they utilize resources to meet company objectives. Of course, California regulates this practice and companies that want to self-insure, they must get a state Certificate of Consent to Self-Insure.

As readers can see, workers’ compensation for Folsom, California, employees is complicated. This is why if one has issues, they should contact an attorney.