CA State Fund: Good Business, Good for CA

The California State Compensation Insurance Fund is on a tear under new Chief Executive Officer, Tom Rowe, completely restructuring its business model becoming much more market competitive, and in my opinion serving its main customer base - the state's small businesses - much, much better.

Yesterday the State Fund announced a tiered rating structure for policies beginning or renewing on or after Sept. 1.

The new rating program will have three tiers, designated from best to worst as “A,” “B” and “C” that they believe will more closely reflect a particular business' experience and risk profile.

This will tremendously benefit California's small businesses, most of which must insure through the State Fund because their premium base is too small to interest private carriers. For small employers with no other option for coverage, State Fund’s tiered rating structure means they will not be subsidizing the risks of poorer performers through higher premiums.

Presently most State Fund policyholders don't pay enough in premiums to qualify for an experience modifier, and because State Fund currently has a narrow pricing range, based on an average of the policyholder’s risk profile and claims experience, employers who have fewer claims pay higher premiums to subsidize the costs associated with the policies of employers with poorer safety experiences.

Jennifer Vargen, senior vice president of marketing and communications for State Fund, says that some employers will see premium increases, and some will see decreases, but most won't be particularly affected - however those with poor risk records could be encourage under the new system to do more for safety. This makes it better for everyone.

And just Wednesday it was reported that insurance brokers will have to meet a premium threshold of $100,000 with the California State Compensation Insurance Fund to maintain a direct contract with the carrier. This will provide significant cost savings to the State Fund because it will make it easier to administer contracts and provide support services to producers, such as providing underwriting manuals or answering questions about policies.

The average policy size for the State Fund is only about $2,000. Requiring a minimum premium threshold means that smaller producers will either need to aggregate or refer their customer to State Fund's direct policy system.

In December, State Fund announced that it was reviewing requests for proposals to develop and manage a network of investigators. State Fund spokeswoman Gina Simons said in an email last year that the investigator network would “standardize the investigative work of outside vendors employed by State Fund, therefore increasing core effectiveness and efficiency.”

And the State Fund has been in the news these past 12 months with downsizing, shedding 1500 jobs, and shuttering excess real estate.

In 2010, State Fund allowed producers to take over its direct business through broker-of-record changes. State Fund also said it will allow brokers to issue proof-of-coverage certificates on their own.

All in all, State Fund's restructuring and change in operations is good for business, and good for California.