Self Insured Group Goes Down
And might take its members with them.
The following is from a recent article from the Insurance Journal Online.
California Contractors Self-Insured Group Closes
By Patricia-Anne Tom
April 30, 2010
The California Office of Self-Insured Plans is revoking the certificate of the Contractors Access Program of California (CAP), a self-insured group of contractors, as requested by the group.
According to OSIP spokeswoman Erika Monterroza, the group, which has had as many as 266 members over its life, requested in October 2009 the revocation at the end of its insured term, which ended on Dec. 31, 2009. “The order for revocation was not finalized until March 29, 2010, but was approved effective Jan. 1, 2010, because the order isn’t issued until all members show proof that they are covered by other insurance or are no longer in business,” she explained. The group is still responsible for paying for claims that arose prior to Dec. 31, 2009.
CAP has faced regulatory action in the past because earlier reports indicated the SIP had insufficient funds to cover estimated future liabilities. California regulations require self-insurance groups to have deposits cover 135 percent of estimated future liabilities.
OSIP became aware that CAP had insufficient funds to meet the 135 percent requirement in the summer of 2009, Monterroza said. Groups are always re-assessed on future liabilities based on their annual report of claims. “At that time, we requested a deficit plan to make up the insufficiency,” she said.
In February 2010, OSIP said CAP indicated its liquidity problems were more significant. So, OSIP required that the group provide a weekly report of all its expense and claims paid, and any expenses above claims are required to be approved by the OSIP. Currently, CAP has deposits to cover 110 percent of estimated future liabilities, Monterroza said.
There has been conjecture by other media that OSIP was lax in its oversight of CAP, because CAP’s group manager CRM has had difficulties in other states, specifically New York, Monterroza added. However, “a lot of that conjecture is not accurate,” she said. “Where there were clear indications that there were issues by the company in other states, in California that has not been the case. Regulations for self-insurance plans in California are much more stringent than in other states.”
All of the requirements for regulatory actions and insufficient funds is designated by California Regulation Title 8, Section 15477, Paragraph B, points 1 through 7, Monterroza said.
End of Article
Many companies go to self insured group plans because they appear to be cost effective (premium savings) and they are basically “Sold Up” by a broker or administrator as a viable alternative to stand alone plans, or first dollar insurance. As you can read, there is a clause in all of these contracts (Joint and Several) that ties you financially to all the other members of the group. You are your brothers keeper in these plans. I highly suggest that you get information from a trusted Professional Work Comp Advisor prior to entertaining joining a group like this.
It is possible to pay $25,000 in premium into one of these plans, and then recieve a massive additional premium (or capital call) when they go under. This is the first failure in a while, but I assure you it will not be the last. CRM managed 5 different groups as SIP’s. 4 of them will cease operations as of 7-1-10, and one (CAP) has been seized.
CRM is also the Holding Company of Majestic Insurance Company that was recently downgraded to B++ with a negative outlook by A.M. Best Rating Service.
I will try and keep you up to speed on these developments in this sector of the market as the story (s) unfold.
Thank you for reading my blog.