Study: California Self-Insured Employers Save Over Traditional Workers’ Comp

By | December 5, 2019

A new study on California workers’ compensation shows the cost of self-insurance is 14% to 28% less than a traditional workers’ comp policy.

It should be noted that the study was commissioned by the California Self-Insurer’s Security Fund, and it was conducted by Bickmore Actuarial. It examines costs for 14 California self-insured employers across a variety of industries and with different self-insured retentions.

The study shows the cost of self-insurance is 14% to 28% less than a traditional workers’ comp policy and that self-insured employers receive an average savings of 21%.

The savings are driven mainly by the reduction in commissions, profit, marketing and administrative and overhead costs found in traditional insurance policies, according to the study.

The 14 self-insurers evaluated are in a variety of industries that retained more than $150 million in annual workers’ comp loss and allocated loss adjustment expense, and the self-insured retentions of those included in the report ranged from $250,000 to $2.5 million.

The self-insurance savings are largely driven by the reduction in commissions, insurance company other acquisition costs, and insurance other/general expenses, which include premium tax. For 2017 the California Workers’ Compensation Insurance Rating Bureau has estimated these costs to total 18% of premium.

The study adjusts for the estimated cost of excess insurance purchased by the self-insurer, self-insurance assessments from the California Department of Industrial relations, and charges by the California Self-Insurers’ Security Fund.

Mark Walls, vice president communications and strategic analysis for Safety National, believes there’s no question that fixed costs for self-insurance are lower and the expectation is the claims costs should be lower also.

“The report focused on the fixed costs associated with self-insurance which are the costs of the insurance and claims administration,” Walls said. “It appears the report assumed the costs of the actual claims would be a constant. However, my experience is that companies that retain risk through self-insurance tend to experience lower claims costs as well. When every dollar is yours, and you are taking care of your valued employees, you have a sharp focus on getting the best possible outcomes on your claims.”

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