Author: Kaya Stanley, Board Chair and CEO, CRMBC
As California’s workers’ compensation insurance market continues to fluctuate, restaurant operators are increasingly turning to self-insurance groups (SIGs) as a stable alternative. A recent podcast interview with Chad Hoxie, Executive Vice President for Alliant Insurance Services, sheds light on the benefits of self-insurance for restaurants and the current state of the workers’ comp market.
Market Cyclicality and Its Impact
The insurance industry is cyclical, with highs and lows in pricing driven by various dynamics. Hoxie points out that in the early 2000s, the 10 largest insurers controlled about 80 percent of the market, creating a supply and demand issue. This led to the formation of the California Restaurant Mutual Benefit Corporation (CRMBC).
“Around the time CRMBC was created (or formed), we saw a massive exodus of insurance carriers leaving California,” Hoxie explains. CRMBC’s goal and purpose was to bring like-minded restaurant operators together to create a safe harbor from the market dynamics and stability in the restaurant owners’ lives.
Current Market Conditions
Today, the market is seeing hints of similar conditions. Hoxie notes that rates have been low for some time, and a correction is likely coming. New entrants to the market are trying to gain market share, sometimes offering rates that may not align with actuarial predictions and are low.
“At some point, if you’re off on those numbers, you’re going to see carriers in a similar method, either pull out of the restaurant space, pull out of workers’ compensation, or pull out of California,” Hoxie warns.
Chad Hoxie’s Benefits of Self-Insurance
Self-insurance groups offer several advantages over traditional insurance:
- Stability: Over the last century, self-insurance has been steadier than any other type of insurance.
- Industry-specific expertise: CRMBC has underwriters, loss control specialists, and claims adjusters who focus solely on restaurants.
- Collaborative environment: Members share best practices and benefit from a network of other operators who understand the sophistication of self-insurance.
- Flexibility in pricing: Self-insured groups are not tied to experience modification factors (X-mods), allowing for more accurate pricing based on current operations.
- Better handling of shock losses: SIGs can isolate unusual losses and price more fairly than traditional markets.
Hoxie emphasizes the importance of considering insurance options beyond just the price.
“Sometimes, when you see those very low prices, there’s going to be something that’s missing,” he cautions. “Am I really just getting a piece of paper that’s going to satisfy my requirement to have work comp, or am I really getting a resource that knows, understands, and can support my industry?”
The X-Mod Factor
One significant advantage of self-insurance is the ability to price without being tied to the experience modification factor. In traditional insurance, the X-mod can impact pricing for years, even after significant operational changes.
Hoxie provides an example: “If you are running a pizza restaurant and you used to do a lot of delivery but decided to stop due to claims, in the standard market, you’re going to see your experience mod, which was developed from all these delivery claims, still impacting your pricing. In the world of self-insurance, we don’t have the experience mod tied in, so we can look at what your operations are doing at this point in time.”
This flexibility allows self-insured groups to price coverage more accurately based on current operations and risk factors rather than being bound by past claims that may no longer be relevant.
Advice for Restaurant Operators
For restaurant operators considering self-insurance, Hoxie advises looking at the full picture rather than treating insurance as a commodity. “Take a look at it outside of it being a commodity and look at all the benefits. Take a look at the pros and the cons, just as you would with your current insurance arrangement,” he suggests.
He also emphasizes the maturity of the restaurant self-insurance model: “We’ve been doing this since the early 2000s. So we’re not coming in as a startup saying, ‘Hey, we think this is going to work.’ We have very good people in the group and extremely good partners in claims, administration, and the broker community.”
Looking Ahead
As the workers’ compensation market continues to evolve, a self-insurance group like CRMBC offers a compelling alternative for restaurant operators. By providing stability, industry-specific expertise, and more flexible pricing, these groups can help restaurants navigate the complexities of workers’ compensation insurance.
While self-insurance may not be the right fit for every restaurant, it’s an option worth exploring, especially for those facing challenges in the traditional insurance market. As Hoxie concludes, “I would encourage people to take a look at it, get a feel for it. Don’t just write it off.”
In an industry where margins are tight, and predictability is valuable, the stability and control offered by self-insurance groups is a significant advantage for many restaurant operators in the years to come.
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Kaya Stanley is an attorney, published author, business owner, and highly sought-after strategic turnaround expert. Ms. Stanley serves as CEO and Chairman of the Board for CRMBC, the largest restaurant workers’ compensation self-insured group in California, and she is the Licensee for TEDxReno, an independently organized TEDx Event.
Throughout her 22 years of practicing law, Ms. Stanley has served as outside counsel for Wal-Mart and Home Depot. She was voted one of the country’s “Top 25 OZ Attorneys” by Opportunity Zone Magazine and published a best-selling book called “The Employer’s Guide to Obamacare.” Before that, she earned her master’s degree in social work and public policy, after which she worked with at-risk girls in Detroit and lobbied for women and families.
