California Legislature Considers Changes to State Fund

California’s Legislature is considering changes to operations of the state’s largest workers’ compensation insurer. Senate Bill 1145 was recently heard by the Senate Banking, Finance and Insurance Committee, and was scheduled for a hearing by the Senate Judiciary Committee on April 15. Assembly Bill 1874 was heard in the Assembly Insurance Committee in early April, and was scheduled to be heard in the House Appropriations Committee on April 30.

According to State Compensation Insurance Fund, the bills are similar and make several changes including increasing the size and scope of SCIF’s board, adding new exempt management positions and instituting new disclosure and open meeting requirements.

“Both are important pieces of legislation that will enable us to continue our progress toward becoming a more responsibly transparent, accountable and effective organization,” said SCIF President Janet Frank. “We are grateful to Senator Machado and Assemblymember Coto for introducing SB 1145 and AB 1874, respectively.”

SCIF indicated that Frank and Board Chair Jeanne Cain are on call to testify at the hearings. The organization is asking that the bills be amended to include the following changes:

• Increase the board size to at least 11 members so they may serve on much needed board committees such as Audit, Governance/Ethics, Investment, Compensation and Finance and establish greater accountability and oversight within SCIF.

Existing law provides that SCIF’s board of directors is composed of five members, one of whom shall be from organized labor, appointed by the Governor. Existing law provides that the Governor shall appoint the chairperson who shall serve at the pleasure of the Governor, and makes the Director of Industrial Relations, the Speaker of the Assembly, and the President pro Tempore of the Senate, or their designees, ex officio, nonvoting members of the board. The proposed House bill would provide that the board of directors be composed of nine members, seven of whom shall be appointed by the Governor. The Senate bill states a board should consist of 11 members, with nine appointed by the Governor.

• State Fund wants to create an additional exempt position of chief risk officer. As an insurer, it is imperative State Fund have a member of the executive team who is responsible for developing and implementing a comprehensive and integrated approach to risk management across State Fund’s operations, the organization indicated.

The bills would provide that the board of directors shall appoint a general counsel, a chief technology officer, a chief financial officer, and a chief investment officer. The Senate bill adds the chief risk officer position, with board member salaries specified at $50,000 tied to the inflation index. Each officer would perform duties as the board directs.

• SCIF wants to modify the Bagley-Keene and Public Records Act language as it pertains to State Fund to enable closed sessions for underwriting/marketing and rate making discussions and the non-application of requests for such information as well as injured worker/ policyholder information to the Public Records Act. The Senate bill would allow that.

Existing law, the Bagley-Keene Open Meeting Act, provides that the meetings of state bodies, as defined, generally be open to the public, noticed, and provides, among other things, the public the opportunity to address the state body on agenda items.

Existing law, the California Public Records Act, provides for public access to the records of state agencies, as specified. Existing law exempts the board from each of these acts. The House bill would repeal those exemptions, and would explicitly make the board subject to the Bagley-Keene Open Meeting Act.

“State Fund’s ability to compete fairly in the private market enables the insurer to remain solvent and to continue to serve as California’s workers compensation safety net. There must be some provision to preserve the organization’s competitiveness and role as the market safety net, and ultimately protect its policyholders and the businesses and workers of California,” Frank explained.

Currently Bagley-Keene permits closed meetings for the discussion of personnel actions, real estate transactions, security matters and litigation. Case law suggests that trade secrets are exempt from disclosure under the Public Records Act.

“Although State Fund is a public entity, we must be able to compete fairly in the private market to remain competitive and effectively balance our mix of profitable business and market-of-last-resort book if we are to remain a stabilizing force on the market,” Frank said. “We look forward to continuing to work with the authors and their staffs to ensure the bills achieve these important goals while also ensuring California’s workers’ comp market — and the employers and injured workers it serves — can continue to rely on the moderating and stabilizing influence and critical safety net State Fund provides.”

Commenting on the differences between the Senate and Assembly bills, Jennifer Vargen, SCIF spokeswoman, said the organization “is trying to be flexible and continue with all paths.”

Meanwhile, Frank said, “Since our Board took unprecedented action last year to set State Fund on a new course, the organization has made significant strides toward transformative change and sound corporate governance. The pace and magnitude of this change has been remarkable and has already resulted in a more open, more accountable and more collaborative operation. There is still much work to be done. Organizational change does not occur over night — it is a marathon and not a sprint — but State Fund is prepared to go the distance.”

For information on the bills, visit www.leginfo.ca.gov/AB1874 and www.leginfo.ca.gov/SB1145.

Topics California Workers' Compensation