Author, Kevin Howard, Partner, Rancho Mesa Insurance Services, Inc.
The fabric of the California’s workers’ compensation landscape is ever changing. Most California-based subcontractors utilize what are called guaranteed cost options for their workers’ compensation needs. This is a safe option that allows for business owners to budget for their overhead costs, however, they have minimal control based on the ebbs and flows of the market. Additionally, with medical inflation and litigated claims on the rise, CA is now experiencing a hardening market as rate increases threaten 2025 and beyond. This has caused many contractors to seek more control over their workers’ compensation program, especially those who have displayed best-in-class safety habits and lower loss ratios to prove it. While guaranteed cost options are widely known, Self-Insured Groups (SIG) are quickly gaining traction as a compelling alternative. By pooling resources, subcontractors can access benefits that are better suited to their specific operational needs.
Predictable Expenses with Added Benefits
A key strength of SIGs is the financial predictability they provide. Unlike traditional insurance with fixed premiums, SIGs have the flexibility to reward participants who maintain excellent safety practices with reduced contributions and the possibility of surplus return premiums that are traditionally nontaxable. This structure not only encourages proactive risk management but also helps members potentially reduce workers’ compensation costs through the hard market.
Comprehensive Risk Management Support
SIGs can often go beyond the typical insurance offering by providing members with access to advanced risk management resources. Because SIGs utilize group communication for safety needs, members can lean on each other and pool data to utilize the hive-type safety support systems. These systems can include safety training programs, compliance audits, and in-depth data analysis. These tools help subcontractors pinpoint and address potential risks, leading to safer worksites and fewer insurance claims.
Collaborative and Transparent Decision-Making
A distinctive feature of SIGs is the active role that members play in the governance of the program. Subcontractors participate in selecting providers, setting policies, and shaping the group's strategies. This cooperative approach ensures that the program aligns with the interests of the members, fostering trust and transparency.
Strength in Numbers
Joining a SIG connects subcontractors to a broader network of industry peers. This collaborative environment encourages knowledge exchange, problem-solving, and collective negotiation, ultimately contributing to mutual growth and resilience. Many SIGs also hold quarterly and/or annual meetings, offering opportunities for additional sharing and recognition when warranted.
When is a good time to consider a SIG?
When annual estimated premiums reach between $150,000 and $1,000,000, and your firm can show competitive loss ratios over a 5 to 7-year window, SIGs can become a viable alternative. More than anything, educating yourself and your management team on this loss sensitive option allows for a more proactive approach to your upcoming renewal.
If you would like to learn more about SIGs and have an interest in this type of program, reach out to me directly at khoward@ranchomesa.com or call me at (619) 438-6874.