Friday, June 24, 2011

AB 228 is Good for California Small Business

One of the big debates ongoing during this California legislative season is whether to grant The State Fund (aka SCIF) an exemption to partner with other carriers to provide coverage to out of state workers whose employer is primarily California based.

The bill being debated is AB 228.

The business logic behind AB 228 is that SCIF would not see licensure in other states, but would partner with other carriers to provide coverage. SCIF would "front" the policy - meaning the employer would pay only one bill. Presumably SCIF would find the best financial alternative for the employer to cover the out of state employees.

Many in the insurance industry are opposed to this bill believing that SCIF's tax-exempt status gives it an unfair competitive advantage and that SCIF would thus take business away from the private market.

This is a ludicrous analysis, and one that has not stood the test of history.

In fact, recent history suggests just the opposite - if it were not for SCIF the California workers' compensation market would be in complete disarray.

Presently SCIF writes under 20% of the market. This is the segment of the market that the private carriers don't want to touch - generally small businesses, with very little payroll, ergo premium generation.

During the tough early 2000's, SCIF had to cover over half of the market. Why? Because private carriers bailed as insolvencies rose and those that were left were too scared to handle the risk. Insurance lobbyists were successful in bringing about the 2004 historic "reform" and as a consequence the private carriers saw good business opportunity and relieved SCIF of the burden of covering the market.

There is nothing in this history that suggests that SCIF would engage in predatory practices to expand its reach. In fact just the opposite - SCIF has routinely demonstrated that it has no appetite for taking market share on a competitive basis.

If we use WorkCompCentral as an example, we have employees in both California and Texas. We used to be covered by SCIF in California, and had to obtain a separate policy from Travelers for our Texas employees.

Farmers came in and gave us a more competitive quote for the California employees so we switched. SCIF did not put up a fight - there was no competitive bidding. We still have Travelers for Texas.

Yes, its a pain to pay two different carriers for the separate policies, and its a pain when they confuse our payroll reporting, but its workable.

However, I can not imagine having more than one other state to worry about as a small business. Dealing with more than two carriers because I happen to have an employee in Arizona, an employee in Nevada, one in New York, and a couple in Texas, would be unworkable. We're just too small for that kind of silliness.

If I had a single source for dealing with our workers' compensation obligations that benefits me, a California business. If it benefits the California business, then its good for California - the private market be damned!

George Miller, State Fund's lobbyist, told the Assembly Insurance Committee yesterday that, "On a competitive advantage that our tax status confers upon us, it's conferred such a great competitive advantage that we've gone from 56% of market to 16% of market. It hasn't really worked to our advantage there, that I can see."

Indeed - the private carrier lobby should be more concerned with providing quality service than worrying whether SCIF will compete with them out of state. That's where the competitive advantage is.

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