IBA WEST has responded to a letter sent to the State Compensation Insurance Fund (SCIF) by California Insurance Commissioner Harry Low in the week saying the insurance regulator’s actions could send the state’s beleaguered workers’ compensation system over the edge and put millions of California workers’ at risk.
In the letter Low urged a “corrective action plan” to address “capital adequacy, writings and loss reserve leverage issues and action level Risk Based Capital (RBC) problems” by June 14th.”
Low said the action plan “must comprehensively demonstrate to the satisfaction of the Department that SCIF will improve its surplus level, as well as its leverage ratios and RBC by year-end 2002.”
Despite urgings by IBA West, Low also suggested that SCIF aim to save money by eliminating or reducing broker fees and take other corrective actions.
“SCIF the insurer of last resort for a large percentage of employers in the state—especially our small businesses and those involved in agriculture and construction,” said IBA West President Joe Hernandez. “In some parts of the state, the State Fund simply is one, if not the only, workers’ comp insurer still writing.”
Hernandez also called Low’s recommendation that SCIF accept only employers who can’t procure coverage elsewhere a “recipe for disaster.”
“Without the opportunity to compete for potentially more profitable business, the SCIF is left only with unprofitable accounts,” Hernandez said.
Low also urged the SCIF to terminate its brokers who produce unprofitable business. While Hernandez said in a normal market this might improve results, Hernandez explained that in a workers’ comp market with very few players left and only one—the State Fund—committed to accept business that others refuse, this would deny the employers who need help the most the loss prevention, loss control and claims management services they receive from the broker they chose to provide them.
On Low’s suggestion that SCIF reduce broker commissions, Hernandez called the suggestion misguided. “Employers insured by the State Fund through brokers enjoy better loss experience as a result of the services provided by their brokers,” Hernandez said. “The savings from utilizing brokers offsets their cost. The State Fund would be unable to provide these essential services itself. It does not have the infrastructure necessary. Without its brokers, it would have to hire thousand of additional employees, thus negating any savings.”
Hernandez said insurance brokers provide value beyond their role in helping to get injured workers back to work quickly. They also help employers obtain coverage at the lowest cost.
“Even during times when prices over-all lag costs, some insurers charge less for certain classifications, etc,” Hernandez said. “Brokers search the market and find the best terms for their insureds. Brokers also encourage new players to enter the market and facilitate by providing them the knowledgeable resources they need to find their niche.”
Hernandez expressed doubt that other workers’ comp. carriers would pick up the slack if the State Fund complies with Low’s plan. “We don’t believe a sufficient number of other insurers would or could step in,” Hernandez said. “As a result thousands of businesses would be unable to continue operations. Then they would be demanding the legislature require other insurers to step in and write workers’ comp coverage. This could precipitate an exodus of insurers from the state and severely damage the state’s economy.”
“IBA West respectfully and substantially disagrees with the above mentioned portions of the approach expressed in Commissioner Low’s letter, and we hope he will reconsider.” Hernandez said. “We will do whatever we can to protect the right of California employers to engage the services of the insurance broker of their choice.”
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