SELF-INSURANCE

Workers' compensation insurance is quite costly and some associations have wondered about self-insurance as a way to save money. Self-insurance is permissible under Labor Code §3700 if an association obtains a certificate of consent from the Director of Industrial Relations. The certificate will only be awarded upon proof of ability to pay any compensation that may become due to the association's employees. 

If approved, the association must file a self-insured employer's annual report and make a security deposit of the greater of $220,000 or 125% of the estimated future liability for compensation plus 10% of future liability for administrative and legal costs (Labor Code §3701). The security must be in the form of cash, securities, surety bonds or irrevocable letters of credit. Because of these requirements, only a small percentage of corporations statewide self-insure.

Updated by ADAMS KESSLER 4/27/2008