As California employers face increasing pressure to control operating expenses, a new actuarial study finds that self-insurance continues to provide a significant financial advantage over traditional workers' compensation insurance.

Jon Wroten

The study, conducted by Bickmore Actuarial and commissioned by the California Self-Insurers' Security Fund, found that self-insured employers spend between 14% and 22% less on workers' compensation than employers purchasing traditional insurance policies. Across the employers analyzed, the average savings was 19%.

The independent actuarial analysis examined the workers' compensation programs of 13 California self-insured employers representing a broad cross-section of industries. Together, the employers retained more than $145 million in annual workers' compensation losses and allocated loss adjustment expenses. Their self-insured retentions ranged from $250,000 to statutory limits.

According to the study, the savings are driven primarily by the elimination of costs built into traditional insurance premiums, including insurer overhead, commissions, marketing expenses, premium taxes and profit. For 2024, the California Workers' Compensation Insurance Rating Bureau estimated that these fixed costs represented approximately 24% of premium.

"The findings demonstrate the substantial financial opportunity self-insurance presents for many California employers," said William Lyons, CEO and chair of the SISF board of trustees. "By assuming greater control over their workers' compensation programs, qualified employers can reduce operating expenses, improve competitiveness and reinvest those savings into their businesses."

Lyons also noted that the California Self-Insurers' Security Fund supports qualified employers through its Alternative Security Program, an innovative collateral plan that allows employers to satisfy California's security requirements without tying up significant capital in letters of credit or surety bonds.

To ensure an accurate comparison, the actuarial study accounted for the additional costs unique to self-insurance, including excess insurance premiums, assessments paid to the California Department of Industrial Relations, and assessments paid to the California Self-Insurers' Security Fund.

Industry experts believe the study may actually understate the full financial value of self-insurance because it focuses primarily on fixed program costs rather than operational improvements that often accompany employer-retained risk.

Mark Walls, chief marketing officer for Safety National, said organizations that self-insure frequently experience better claims outcomes because they have a direct financial stake in every case.

"The report focused on the fixed costs associated with self-insurance, which are the costs of insurance and claims administration," Walls said. "It appears the report assumed the costs of the actual claims would remain constant. However, my experience is that companies that retain risk through self-insurance tend to experience lower claims costs as well. When every dollar is yours, and you are taking care of your valued employees, you have a sharp focus on achieving the best possible outcomes on your claims."

The findings reinforce decades of experience within California's self-insurance marketplace, where qualified employers have consistently demonstrated that assuming responsibility for their own workers' compensation risk can reduce costs while providing greater control over claims management, safety initiatives and return-to-work programs.

As workers' compensation costs continue to challenge California employers, the study suggests that self-insurance remains one of the most effective long-term strategies for organizations seeking greater financial control and improved program performance.

Jon Wroten is senior vice president of The PATH Alliance and managing director of California Risk Advisors LLC. He previously served as chief of the California Office of Self-Insurance Plans, where he oversaw the nation's largest self-insurance regulatory program.