For several years California banks have had to deal with skyrocketing costs for workers' compensation insurance because of the continued rise in the cost of claims.
Now a number of banks are banding together to form self-insurance groups to keep their costs down.
In March the Western Independent Bankers formed a pool for members with top workplace-safety records. Five banks have joined, contributing a total of about $1.2 million in initial premiums.
The San Francisco trade group expects at least 40 more to join by the end of August, said Anne K. Scully, the president of WIB Service Corp., its for-profit arm.
James G. Stathos, the chief financial officer at the $2.3 billion-asset Mid-State Bancshares in Arroyo Grande, said it cut its premiums for workers' compensation insurance by nearly 40% by signing up with WIB's pool this year.
In 2000, Mid-State paid about $650,000 in premiums to its insurance carrier. Premiums climbed even though the company did not have an increase in claims, and by 2004 they were $1.2 million. This year Mid-State paid $750,000 in premiums to the self-insurance group.
"This is a better alternative to standard workers' comp insurance - we're not thrown into a pool of workers such as roofing contractors," who tend to have more workplace injuries than bank employees, Mr. Stathos said. In addition to limiting itself to banks, the self-insurance group cherry-picks those that have not had a lot of claims.
Another self-insurance pool being formed in California expects to have 25 members by the end of August, said Kim Stantin, an executive director at Bickmore Risk Services in Sacramento, which will handle administration for the group.
Banks nationwide have been self-insuring to cover fraud for decades - and more recently to cover escalating health-care costs. But until now only Michigan banks have formed self-insurance pools specifically for workers' compensation.
The Michigan Bankers Association founded the Michigan Bankers Workers' Compensation Fund in 1981 after insurance costs in the state soared.
Kurt Shulze, the fund's chairman and the human resources manager at the $7.8 billion-asset Citizens Banking Corp. in Flint, said Michigan's liberal laws covering claims and benefits have meant higher costs for years.
Likewise, bankers in California say its liberal workers' compensation laws have resulted in soaring costs. Premiums began to spike several years ago, when many insurance carriers stopped writing policies in the state altogether, leaving just a few in control of the market.
Laws that California adopted in 2003 and 2004 reduced the cost of workers' comp claims to insurers. The reduction encouraged more to write policies.
But bankers say premiums have not gone down, because insurers are not required to share cost-savings with their customers. According to California Insurance Commissioner John Garamendi, even though the dollar amount of workers' comp claims has dropped 15% since the reforms went into effect, average premiums have risen 11%.
Self-insurance bank pools in California need approval by federal and state banking regulators and the state's Department of Industrial Relations. Banks can form such pools if they collectively come up with an initial minimum of $500,000. Though bankers sit on the pools' boards, practically all operations are outsourced, including brokerage services and administration of insurance policies and claims. (State law requires that operations be outsourced to separate companies.)
Premiums collected from members go to pay for these services and for any claims. The group also buys "excess insurance" to cover claims over $500,000 and "aggregate insurance" to maintain coverage if claims deplete the fund.
Ms. Stantin at Bickmore, as well as other observers, said self-insurance pools give banks another reason to maintain their excellent safety records.
