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Garamendi’s Words Out of State Fund’s Mouth?
By Robert Warne - March 3, 2003

Keeping his remarks above the belt, California Insurance Commissioner John Garamendi divulged his industry-anticipated position on the State Compensation Insurance Fund (State Fund).

In a follow up to his seven areas of immediate focus to prevent a workers’ compensation disaster that he bit into last week, State Fund has followed suit at the request of the commissioner and proposed seven steps of its own.

Garamendi acknowledged the course State Fund plans to take is in-line with his vision of industry stabilization. Which will start, according to Garamendi, when other carriers see State Fund, with more than 40 percent of the state’s premium charging adequate rates and meeting its financial obligations.

The seven-step plan State Fund will adhere to is as follows:

1) State Fund will retain a management consultant to ensure that it operates as effectively and efficiently as possible. It will also retain a consultant to assist the new chief financial officer. This consultant will focus on finding additional opportunities to strengthen the capital structure of the organization.

2) State Fund will take steps to dramatically reduce new business. Business submitted by brokers and agents will have to demonstrate that insurance is not available from any other source.

3) Effective July 1, State Fund will implement a further rate increase on new and renewal policies. This increase will be adequate to ensure that premiums paid by policyholders are sufficient to pay all claims and claims-associated expenses and restore surplus to an adequate level.

4) State Fund will reduce broker commission rates and conduct a review of business submitted by brokers and their companies. Those brokers found to consistently write unprofitable books of business will lose their certification.

5) State Fund will explore reinsurance arrangements to reduce the strain on its surplus caused by the rapid growth in new and renewal business.

6) State Fund will also strengthen its underwriting practices to ensure control over the quality of new business it must write because there are no other markets for those accounts.

7) State Fund will review all of its accounts. It will then implement appropriate surcharges and reduce merit rating credits for unprofitable accounts upon renewal.

“These initial actions I've announced today to address the State Fund problem are an early and important part of my overall effort to correct California's workers' comp system. The only way California employers will see a reduction in their workers compensation costs is with strong regulatory action and quick and effective restructuring of the system by the legislature. In the days and months ahead it is imperative that we delve deep into the system to correct the underlying factors that are increasing costs and driving businesses out of California," said Garamendi.

 
 

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