State Works to Arrest Escalating Workers' Comp
After a rough-and-tumble year, California’s State Compensation Insurance Fund (SCIF) has been ordered by state insurance commissioner Harry Low to improve its financial reserves, according to apparel industry sources and state officials.
“We have been and will continue to work constructively with SCIF to slow their growth rate and stabilize the workers’ compensation insurance market,” said Low.
SCIF, which serves as a backup insurance provider for legions of workers’ compensation claims in the state, received a letter from Low earlier this month requesting that SCIF come up with a strategy that will increase its reserves and present it to his office on June 14, according to the state’s Department of Insurance.
The letter, which was addressed to SCIF president Kenneth Bollier, suggests that the state-run company may want to consider increasing premium rates and eliminate discounts to policyholders who operate large-volume businesses. The effort to increase reserves could also amount to a reduction in commissions for insurance brokers.
“Our concern regarding SCIF’s reserves being sufficient is based on the risk-based capital guidelines established by the National Association of Insurance Commissioners and SCIF’s extraordinarily rapid growth rate,” said Low, who in recent weeks has been under fire by consumer advocates who believe he is in support of a new regulation that allows insurance companies to share or sell their customers’ personal financial information.
Jim Zelinski, a spokesman for SCIF, said the company wants to assure policyholders that it will continue to have “the financial wherewithal to pay claims now and in the future.”
Zelinski said Bollier is confident that SCIF’s reserve, which currently holds $3.6 billion in premium volume and $1.36 billion in surplus (as of the end of March), is adequate and that Low is just acting on pressure from private insurers who want to increase their rates without having to compete with the state-operated insurer. But the state insurance commissioner’s office dismisses those claims, saying Low has been working on this issue for months.
“This action has no political implications; he’s just concerned about the stability of the marketplace,” said Nancy Kramer, Department of Insurance spokeswoman. “The department bases its estimates on projected losses in certain industries for a long-range forecast and sets aside reserves to cover those losses. The problem comes when the losses exceed projections and/or reserves.”
Futhermore, in recent months SCIF has been in discussions with several re-insurers to boost surplus by transferring some of its policies to other carriers, said Zelinski.
“We’re the lone pillar of stability in the workers’ comp system. We’re mandated to be fairly competitive; we’re not here to be an assigned risk carrier,” explained Zelinski, who added that the fund is currently planning to increase premium rates by July 1. Zelinski declined to say how much of an increase is in store for business owners, but he did say it would be at least 10.1 percent.
Apparel Resources Inc. chief executive officer Randy Youngblood calls the situation an economic hazard.
“The State Fund has increased the percentage of total business in state, especially in the garment industry, and has increased workers’ comp benefits two times over the past year,” he said. “The fund has had such huge losses coupled with the huge increases of benefits paid to workers’ comp and disability. Something is bound to go wrong.”
In an effort to effectively compete for market share, insurers charged lower premiums that may have compromised their ability to cover losses. Superior National, Reliance Insurance Group, Fremont, Sable and HIH America Compensation Group were among the competition’s casualties.Zelinski points to SCIF’s role as a safety net for policyholders when many of those insurance companies went out of business.
“Basically, deregulation took pricing barriers out of workers’ comp,” said Youngblood, whose own prediction includes a 14 percent to 15 percent increase in workers’ comp rates in the coming months. —Claudia Figueroa
