News Archive

Email A Friend

More News

April 15, 2024
Colorado Worker Shows Head Injury Happened as a Consequence of a Knock on the Head at Work

April 4, 2024
Callfornia Division of Workers' Compensation Pharmacy and Therapeutics Committee Meeting Scheduled for April 17, 2024

April 3, 2024
California Division of Workers' Compensation Posts Adjustments to Official Medical Fee Schedule (DMEPOS)

April 2, 2024
California Division of Workers' Compensation Posts Adjustments to Official Medical Fee Schedule for Pathology and Clinical Laboratory

Caught in the crossfire, claims adjusters are keeping a low profile at the State Compensation Insurance Fund (SCIF).

One adjuster said that they hadn't been discussing the recent news much since California Insurance Commissioner Harry Low turned up the heat. For the most part the adjuster said, they were just trying to ignore it.

The letter below was sent out today to policyholders. Regarding the letter, another adjuster said, "hopefully it will help all of us to avoid the static and noise about SCIF."

From the tone of the letter it is clear Fund President Kenneth Bollier isn't going to just throw in the towel after the first round.

June 7, 2002

Dear Policyholder:

The implementation of open rating for California workers' compensation insurance effective January 1, 1995 has not gone well.

Initially, employers saw dramatic price reductions, but these in many cases were the result of under-pricing, inadequate claims reserving, and failed reinsurance schemes. This led to the liquidation or oversight of some insurance carriers and the exiting from the market by others.

During this time, State Compensation Insurance Fund carried out its role as an always-available market and a fairly competitive carrier. Our underwriting standards were maintained; brokers and agents were given expanded access and price increases were taken gradually to lessen the impact on California employers.

Because of State Fund's efforts during the last seven years there has been no affordability or availability crisis in California's workers' compensation market. But, the lack of competitiveness in the marketplace has led to rapid, and largely unplanned, growth for State Fund. This growth has strained our resources and surplus position. Despite that, we remain financially strong. State Fund's loss reserves have been found reasonable at year-end 1999, 2000 and 2001 by PricewaterhouseCoopers, Milliman USA, and the Department of Insurance's consulting actuary. We have over $9 billion in assets. Our reserves for future losses and loss adjustment expense are $7.6 billion. These reserves are backed by $8.7 billion in bonds on deposit with the State Treasurer of California. Cash flow will be over $2 billion positive in 2002.

Marketplace capacity is still limited, however. Many insurers remain leery of the California marketplace because of pricing issues, reinsurance and terrorism concerns, and a changing legislative and regulatory environment.

Unfortunately, there is a mindset in the workers' compensation insurance industry that State Fund should charge higher prices to bail out those insurers who under-priced their products and to facilitate a higher profit margin for the others. This mindset is apparently shared by the California Department of

Insurance. In a May 29, 2002 letter to State Fund, Insurance Commissioner Harry Low has directed us, under threat of formal corrective action, to "strongly consider" the following:

increase rates,
eliminate credits and discounts,
eliminate dividends,
eliminate or reduce commissions,
terminate agents that produce unprofitable business, and
practice "Insurer of Last Resort" philosophy viz., only accept accounts that are unable to procure workers' compensation coverage elsewhere [at any price] parenthetical words added.

With the exception of the "termination" item, all of these suggestions, and particularly the last one, would lead to draconian price increases for thousands of California employers and far exceed what State Fund needs to achieve surplus adequacy.

In short, compliance with Commissioner Low's egregious and unwarranted directive is a recipe for economic disaster. It will result in horrendous increases in workers' compensation costs for all California employers, whether insured with State Fund or not.

Sincerely,

Kenneth C. Bollier
President

cc: Board of Directors
cc: Hon. Harry Low, Insurance Commissioner
cc: Hon. John Burton, President pro Tempore, California State Senate
cc: Hon. Herb Wesson, Speaker, California State Assembly
cc: Hon. Thomas M. Calderon, Chair, Assembly Committee on Insurance and Members
cc: Hon. Richard Alarcon, Chair, Senate Labor and Industrial Relations and Members
cc: Hon. Jackie Speier, Chair, Senate Committee on Insurance and Members