Becoming A Member

Employers wanting to self-insure their workers’ compensation liabilities must first apply to the State of California, Office of Self Insurance Plans (OSIP) for approval.

The private-sector application process for a new employer (not currently self-insured in California) can take up to 30 days. During that period, OSIP evaluates the application to determine the applicant’s financial strength, proposed benefit delivery system, and loss prevention program.

Current regulatory requirements for an organization desiring entry into self-insurance are:

1. Three calendar years in business in a legally authorized business form (e.g. corporation, partnership, proprietorship, non-profit, etc.)
2. Three years of certified, independently audited financial statements
3. A minimum credit rating (B- / B3) for three consecutive years (formal or implied)
4. Certification that the applicant has implemented an effective injury and illness prevention program

Based on the information provided and an organization’s financial health and status, Security Fund members will fall into one of three major categories with respect to the required security deposit: (1) “Fully Participating” in the Alternative Security Program (ASP); (2) “Partially Participating” in the ASP and posting a portion of required security deposit (collateral); or (3) “Excluded”, which means they do not participate in the ASPs collateral program and must post the entire required security deposit to cover their estimated future claim liabilities.

The ASP “Fully Participating” category is the most desirable because members do not need to post collateral.  The ASP serves as a composite deposit that is funded through annual participant assessments that are in lieu of the costs associated with each entity otherwise having to post collateral with OSIP, in the term of cash, a letter of credit or surety bond to secure its required on-going liabilities.

The assessment for “Fully Participating” members is generally the highest since it includes two components: (1) the entity’s share of risk transfer (hedging) costs; and (2) its share of the Default Loss Fund contribution.  The “Partially Participating” member assessment is the second highest.

There are three distinct sub-categories of “Excluded” employers: (1) members seeking entry into the ASP category but not meeting minimum credit rating requirements (2) self-insured groups, such as associations representing a collection of similar businesses (3) organizations considered credit risks.  “Excluded” employers are assessed based on their share of the Default Loss Fund fee for each year.

The following table highlights the major requirements, considerations and factors that determine a member’s category of eligibility.  It also provides a general overview of each category’s level of assessment:

“Partially Participating” employers are those that qualify to participate in the ASP but are not able to do so fully, based on creditworthiness.[1]  These employers will post a portion of their required security deposit pursuant to California Labor Code §3701.  The remaining security deposit will be covered via the composite deposit as follows (the exact percentages are set at the Security Fund’s discretion and may vary):

Subject to Board discretion.