Calif. Commissioner Formally Enforces Regulatory Powers Over SCIF

California Insurance Commissioner John Garamendi announced March 21 that California State Compensation Insurance Fund would continue to provide workers’ compensation coverage for employers incapable of finding coverage elsewhere per his command to State Fund president Dianne Oki on March 19.

Oki told the Assembly Insurance Committee March 19 that State Fund would soon have to stop writing new accounts due to it’s precarious financial situation, likening the company as an ‘oversaturated sponge.’ Garamendi responded to Oki’s statements by reiterating State Fund’s role as the ‘insurer of last resort’ in California’s marketplace and ordering State Fund to continue acting in that manner.

“[Dianne Oki] is trying to protect the interests of State Fund policyholders, injured workers, and constituencies in the system,” Jim Zelinksi, State Fund spokesperson, said. “State Fund has to be financially healthy.

“This is a fluid situation. At this point there is not a definitive timetable for declamation of policies or new business. We’re having ongoing discussions with the Commissioner’s office in regards to strengthening our surplus,” Zelinksi added.

In a press release from the California Department of Insurance (CDI), Commissioner Garamendi said “Let me make it clear to every business and to SCIF management that companies that have diligently searched the private market for coverage and can prove they have no other option will be able to obtain insurance from State Fund. We are working aggressively to effect long-term solutions for both State Fund and the overall workers’ compensation system. I am confident that our work will bring financial stability to State Fund and provide long-term relief for the $15 billion workers’ comp marketplace.”

State Fund has been under formal regulatory control by the CDI since March 3, per Insurance Code 739.4, section b, sub-section 3, which states, “Subsequent to the examination or analysis, issue a corrective order specifying such corrective actions as the commissioner shall determine are required.” The Commissioner ordered the regulatory action with the release of State Fund’s financial reports, which showed the levels of surplus and reserves to be at an unacceptable level, according to Nanci Kramer, a spokesperson for the CDI.

“At different levels of financial challenge, the Commissioner has the varying levels of authority, and that authority increases with the level of financial difficulty,” Kramer said. State Fund is at the ‘Regulatory Action’ level, which allows the Commissioner to direct them to take corrective action, and oversee that action. If State Fund’s financial condition continues to deteriorate, the Commissioner is authorized to take further action, which could include conservation and liquidation.

This form of regulatory action does not give the Commissioner operational control of State Fund, yet does give him the authority to order State Fund to take certain actions in order to maintain financial stability.

Kramer emphasized conservation and liquidation “is not an issue with Sate Fund. The Commissioner wants to make sure State Fund doesn’t get into that situation.”

Kramer explained that under AB 749, the Commissioner has ‘rate authority.’ “If an insurer’s financial condition indicates their rates are not appropriate or need to be addressed, he has the authority at different levels to come in and say ‘You have to address them.’ It’s really about getting stability in the marketplace.”

Additionally, Kramer said State Fund would continue to write coverage for business “unable to prove that they cannot obtain insurance on the open market. The Commissioner believes firmly that they are the insurer of last resort.” Kramer added that a letter of rejection from other comp carriers would be necessary to secure coverage with State Fund.

The Commissioner has been working with State Fund to improve their financial condition, and recently announced a business plan designed to bring the carrier back to stability. According to a CDI press release, “At [Garamendi’s] direction, SCIF management prepared a comprehensive business plan designed to accomplish several major goals, including, but not limited to: Reducing premium income, increasing surplus and profitability, strengthening management and creating operating efficiencies. These steps include a dramatic reduction in new business at SCIF and a rate increase.”

“Insurance will be more expensive at State Fund, and agents and brokers will be required to show three legitimate declinations from other companies before they place new business and some renewals,” Garamendi said. “But in the end State Fund will be there to write the business.”

Key legislative figures are supporting Garamendi in his order to State Fund to continue writing new coverage for employers in need, including Assemblymember Juan Vargas, chair of the Assembly Insurance Committee, and Senator Richard Alarcon, according to the CDI.

Insurance Journal will bring you the latest updates on this story as it unfolds.