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Plan
Details
Advantages
of Self-Insurance The
concept of self-insurance eliminates the profit margin charged
by insurance carriers.
The
benefits include:
 Stable
Rates - Rates
are based only on the group's actual claims history and are
subject to approval by the Board of Trustees elected by the
members of the group.
Surplus
Distribution - Retained
earnings accrue to the benefit of the members, not outside
investors or insurance companies.
Lower
Expenses - Operating
expenses are lower than an insurance company average of
40 percent.
Investment
Income - The
group retains the revenue from the contribution fund
investments.
Member
Selection - New
membership is restricted to dealers who meet the underwriting
guidelines established by the group.
Improved
Claims Management - The
claims administrator is accountable for the performance
standards established by the group.
Reduced
Losses - Members
are aware the payment of claims reduces the contribution fund
and each member has a greater appreciation for safety and loss
control.
AD-COMP
is a California non-profit mutual benefit corporation,
FEIN-77-0559925, established to provide a more efficient
method to manage workers' compensation costs for California
franchised auto dealers who qualify for membership.
Program
Administration
California
regulations require AD-COMP to retain the services of an
independent administrator to manage the operations of the
group. Self Funded Alternatives (SFA) is the program
administrator for AD-COMP. SFA specializes in:
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Self
Insurance Administrative Services
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Risk
Management
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Underwriting
and Consulting Services
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Finance
and Accounting Coordination
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Actuarial
Study Coordination
SFA
reports directly to the AD-COMP Board
of Trustees.
Loss
Control
The
Loss Control Service Team of expert safety consultants are positioned throughout
California to assist member with the maintenance of their Injury Illness
Prevention Plan and provide timely response for onsite assistance.
Safety
Program Review
Review
Injury and Illness Prevention Plan
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Provide
team member with an AD-COMP "tool box"
containing IIPP manuals and storage for all required
safety and compliance documents.
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Management
Commitment, Assignment of Responsibilities
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Safety
Coordinator Responsibilities and Effectiveness
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Accountability/Compliance
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Self-Inspection
Program
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Hazard
Correction Methods
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Employee
Hazard Reports
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Employee
Communication/Safety Meetings (Committee membership
structure, documentation of committee meetings)
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Safety
Rules (Code of Safe Practice)
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New
Employee Orientation
Review
implementation of basic programs at the dealership:
Excess
Insurance
AD-COMP
purchases excess insurance to protect the contribution fund from a single large
loss. Protection from a single large loss is referred to as "Specific
Excess Insurance". DIR OSIP regulations require group self-insured
programs to purchase Specific Excess.
Specific Excess limits the amount a self-insured group pays for any one incident
or claim. The maximum amount of AD-COMP's responsibility is $500,000. per
accident occurrence. The maximum amount the group is responsible for is
referred to as the Self-Insured Retention (SIR). The excess carrier pays
the excess amount over $500,000. A single claim is defined as one or more
employees injured in the same event.
The excess carrier for AD-COMP is
American International Group (AIG), rated A+ (Excellent) by A.M. Best Company.
Claims
Administration
All claims,
including first aid only, are reported directly to a Third Party Administrator (TPA),
Intercare Insurance Services. State regulations require the TPA be located
in the same state as the self-insured group. Intercare has seven offices
throughout California. All claims are reported to the Sacramento office.
A Claims Summary Report is provided to every member on a monthly basis.
The report contains information on all claims incurred by the member for each
program year. The dealer may obtain details on a specific claim via
internet access to the examiner's files with a secured password. The
caseload per examiner is below industry standards and complies with the
Department of Industrial Relations Standards for self-insurance. The AD
COMP caseload is 160 claims per examiner.
Reserves
are set up as accurately as possible and monitored
systematically. Reserve integrity is ensured by regular diary control
analysis of reserve propriety each time a file is reviewed by the examiner
and/or their supervisor, as well as upon receipt and review of pertinent
information. DIR regulations require an audit of claims procedures and
reserve practices by an independent licensed Workers' Compensation claims auditor.
The
TPA contract for services between Intercare Services and
AD-COMP contains specific performance standards relative to
claims processing procedures. Doxsee Foster &
Associates monitors the execution and compliance of all procedures and
reports and non-compliance issues directly to the AD-COMP
Board.
AD-COMP
has established a Claims Handling Philosophy and Litigation
Policy detailing procedures to ensure the professional,
competent, and cost effective handling of claims and defense
litigation of cases that come within the parameters of the
program. The procedures are described in Draft
Resolution No. 2-2004 of the AD-COMP bylaws.
Joint
& Several Liability
The members are jointly and severally liable for claims below the excess
insurance levels. All group self-insured plans are subject to joint and
several liability.
The California Department of Industrial Relations stipulates the following:
"The Group Self-Insurer and each of its Group Members are jointly and
severally liable for paying and securing liabilities of the Group
Self-Insurer and it's Group Members for the payment of any and all
compensation liability required by Labor Code Sections 3700 through 3705 of
any and all employees of any Group Member, of the Group Self-Insurer and/or
of the Group Self-Insurer, itself, provided the compensation liability
results from an occurrence with a date of injury during the period of
membership in said Group Self-Insurer."
Each member is required to sign an Indemnity Agreement ( Form A4-8) containing
the above condition and additional terms.
When an employer purchases Workers' Compensation insurance from a traditional
insurer and that employer has poor experience, the future cost of insurance
would be adversely affected. In addition , if the industry has poor
experience for a particular class, the employer would pay higher rates in the
future even though its experience was good. In a Self-Insured Group (SIG),
an employer will also pay more or less in future years based on an employers
experience and the entire group's experience.
There are several mitigating factors which reduce
the potential that an assessment will be made:
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Pooling
spreads the risk so that when one member has an
especially bad year it is generally offset by
another member who has an excellent year
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Actuarial
study and resulting rates are based on 80%
confidence level as required by DIR OSIP
regulations
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Investment
income adds significantly to the claims reserve
fund
Contribution
(Premium) Payments
The
rates for all members of AD-COMP are the same. The rates are modified by
each dealers experience modification factor. The contributions are paid
directly to Auto Dealers Compensation of California, Inc. A California
bank serves as the trustee for the deposited funds. The funds invested in
the CD's and Treasury Bonds under strict regulation of the DIR OSIP. The
AD-COMP Board of Trustees has discretion for management of the investment
portfolio and retains the services of a professional
investment company.
Conclusion
Risk
of Self-Insured Group (SIG) vs. Traditional Insurance (CIGA)
The Department of Industrial Relations places greater restrictions on SIGs than
those placed on traditional insurers by the Department of Insurance. The regulatory protections include:
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Annual
filing with the Department of Industrial Relations
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Member
approval by the Board, Excess Carrier and DIR.
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Required
excess insurance
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Rate
approval (Rates must be sufficient to fund projected claims)
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Annual
independent actuarial evaluation and projection of losses
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Annual
audit from approved CPA firm
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Security
Deposit posted with the DIR to guarantee payment of any future liabilities.
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Payment
of all premium contributions by due date
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Net
worth requirements
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Annual
Independent Audit of Claims Administrator.
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PLAN
SUMMARY