Under self-insurance rules, every private self-insurer which has not been self-insured previously shall:

• A. Adjust its own claims
• B. Contract with a third party administrator for the first three years of self insurance
• C. Contract with a TPA for the first 5 years of self insurance
• D. Conduct the administration of each self insurance program through the services of a competent person or persons located in CA.

Answer: (B)

When a private employer begins self-insuring, the system requires that claims administration be handled by a third-party administrator for a defined initial period. This ensures claims are managed by experienced professionals and that regulatory requirements are met during the early transition to self-insurance. The rule specifies three years, making the contract with a third-party administrator for the first three years the precise obligation.

The other options don’t fit this specific requirement. Self-adjusting claims would bypass the mandated outsourcing initially, which isn’t allowed for new self-insurers. The five-year period is incorrect, since the rule calls for three years. Simply having competent personnel located in California is important, but it does not specify the required three-year outsourcing arrangement that defines the scenario.