Managing workers’ compensation insurance is a vital part of ensuring your organization’s stability and ability to serve residents. Many communities consider joining Self-Insured Groups (SIGs) as a way to control costs and streamline claims management. However, beneath the surface, there are significant legal and financial risks that can catch even the most well-intentioned organizations off guard. Understanding these potential pitfalls is essential to safeguarding your community’s long-term stability and avoiding costly surprises that could threaten your mission and financial health.
Joint and several liability carries real financial risk: Most self-insured groups (SIGs) in California generally require members to sign an indemnity agreement with a joint and several liability clause. In practice, this means your community may be responsible not only for its own claims, but also for any shortfall in the group. Even if your operations are well managed, another member’s poor performance can, in many programs, create financial exposure for the group. While the details may vary by program, the potential liability is significant enough that communities focused on long-term stability, should work with a specialized broker to fully understand the exposures before joining.
Leaving doesn’t always end your liability: Members exiting a SIG may still be liable for claims that arise during their time in the group – even years after departure. This liability can include unpaid contributions, assessments for underfunded losses, and costs tied to adverse claim development. While the specific exit terms depend on the group’s governing documents, in many programs, exiting a SIG without a clear strategy can expose your community to financial obligations long after membership ends.
Assessments can deliver costly surprises: SIGs may levy additional contributions – often called “assessments” – on current or former members when group losses exceed funding. These charges are commonly triggered by underfunded losses or adverse claim trends within the SIG and are over and above regular contributions a member has already paid. In many cases, this kind of volatility can deal a significant financial blow to a non-profit senior living community’s budget. For communities prioritizing financial stability, a more predictable, fixed-cost insurance program may be worth considering.
It’s crucial for you to thoroughly evaluate these risks, seek expert guidance, and consider alternative strategies that align with your community’s long-term sustainability. Being proactive now can prevent costly surprises down the road and ensure your community remains resilient in the face of complex regulatory and financial challenges.
Regulatory References: California Code of Regulations, Title 8 15479, 15480, 15484; OSIP Indemnity Agreement requirements
