The California Self-Insurer’s Security Fund (SISF) released findings of a study conducted by Bickmore Actuarial. The study compares the overall cost of workers’ compensation self-insurance with the cost of traditional workers’ compensation insurance. The study examined workers’ compensation costs for 14 California self-insured employers across a variety of industries and with different self-insured retentions.
Based on a sample of 14 self-insurers, Bickmore estimated self-insurance savings of 14% to 28% versus full insurance. The average savings are 21%.
The 14 self-insurers that we evaluated are in a variety of industries and retain over $150,000,000 in annual workers’ compensation loss and allocated loss adjustment expense (ALAE), as projected by their independent actuaries. The self-insured retentions (SIRs) of those included in our evaluation range from $250,000 to $2,500,000.
In order to estimate self-insurance savings Bickmore started with projected ultimate loss & ALAE detailed in each self-insurers’ actuarial study, and then we added industry-wide loads for both insurance and self-insurance. The self insurance savings are largely driven by the reduction in commissions, insurance company other acquisition costs, and insurance other/general expenses (including premium tax). For 2017 the California Workers’ Compensation Insurance Rating Bureau (WCIRB) has estimated these costs to total 18% of premium.
The key difference between the low and high savings estimates is the assumed insurance company profit. Historically, California insurance company workers’ compensation profit has been highly variable by year. The low savings estimates assume no insurance underwriting profit. The high savings estimates assume insurance company profit is roughly 10% of premium, which the WCIRB has estimated insurance company profit to be for the 2017 year.
In addition to the costs previously discussed, 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 (DIR), and charges by the California Self-Insurers’ Security Fund (SISF).