Calif. Commissioner Formally Enforces Regulatory Powers Over SCIF

Responding to numerous inquiries concerning the availability of workers’ compensation insurance from the California State Compensation Insurance Fund (SCIF), Insurance Commissioner John Garamendi, backed by legislative leadership, reiterated his direction to SCIF management that it will continue providing coverage for employers unable to obtain it elsewhere.

SCIF president Dianne Oki told the Assembly Insurance Committee March 19 that SCIF’s financial condition might lead it to stop writing new policies. Due to its ongoing challenges, SCIF, the state’s largest provider of workers’ comp insurance, is currently under the regulatory control of the California Department of Insurance (CDI).

“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,” said Commissioner Garamendi. “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.”

Commissioner Garamendi is working directly with SCIF to improve its financial condition. At his 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 leaders expressed support for the commissioner’s efforts. “At the hearing on Wednesday it was made very clear by the commissioner that we must have a viable State Fund and ensure that all California businesses will continue to have access to workers’ compensation insurance as mandated by law,” said Assemblymember Juan Vargas, chair of the Assembly Insurance Committee. “I am in support of the commissioner and I appreciate his leadership in taking on this difficult issue.”

Vargas drafted AB 1215 to address fraud in the workers’ compensation system. He is also working with the commissioner and other lawmakers to draft additional legislation to ensure the viability and continuity of SCIF.

Senator Richard Alarcon has authored legislation to contain medical costs within the system. “In order to maintain consistency in the market and the system we must maintain the viability of SCIF,” said Alarcon. “I agree with the commissioner’s assessment that a variety of cost factors are driving the escalation in workers’ comp rates. SB 228 offers a long-term solution to contain a significant contributor to the overall problem. Experts, employers and labor leaders agree SB 228 will reign in medical costs and lower insurance premiums.”

In early March, Commissioner Garamendi announced his plan to address the crisis in the overall workers’ comp system. It will support legislation needed to control medical costs, create uniformity and certainty in permanent disability benefits, reduce litigation, and establish standards of conduct for claims adjusters and appeals judges. Regulatory action is also needed to preserve the fiscal integrity of insurance companies, reduce fraud, and coordinate state agencies’ activities.

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