Calif. Insurance Commissioner John Garamendi’s announcement of the seven-point business proposal to return State Compensation Insurance Fund to financial stability in March was naturally met with a great deal of apprehension by brokers across the state. Industry association IBA West has stepped in to attempt to alleviate the potential strain on brokers, who lie fearful of further reductions in commissions as ordered by the Commissioner.
IBA West has made defending brokers from possible forthcoming detrimental actions by State Fund and the Commissioner a top priority, as evidenced by the ongoing meetings and discussions with the Department of Insurance and State Fund. Backed by lobbyist John Norwood, IBA West has worked diligently to express the concerns of brokers by submitting several plans designed to alleviate the effects brokers face if Garamendi’s orders stand.
Lead counsel Steve Young talked with Insurance Journal about the pending orders, and discussed the current status of broker commissions, among other issues. “The good news for California employers and insurance brokers and agents is that the program itself at State Fund is alive and well,” Young said. “We believe there were efforts to basically eliminate the program altogether.”
Furthermore, Young said that considerable broker compensation is still available in the form of broker commissions—although the fees have been significantly reduced already.
However, many concerns still remain on the forefront of many brokers’ minds. One area, Young explained, that the Commissioner is particularly focusing on, is declinations. “The good news is that the Commissioner [recently] accepted an IBA West recommendation, at least in part, to do away with the requirements that California employers, either dealing with the State Fund directly, or brokers, representing other employers, need in every instance to produce three declinations from other companies providing comp before the State Fund would take their business. They’ve accepted our suggestion, but the bad news is they didn’t take our suggestion verbatim. [Instead] they supplemented or modified it in ways that we are not particularly pleased with, namely, the broker self-certification.
“Contrary to what we had recommended, [State Fund] now has a requirement the broker has to produce a document under penalty of perjury and make statements about whether other quotes have been received, which frankly… may or may not be something a broker could even certify these days. We’re not completely pleased with what the Commissioner has done, but we think it’s a vast improvement,” Young said.
The next big concern for IBA West is the significant number of broker terminations in response to Garamendi’s orders, a problem Young has seen first-hand as evidenced by the numerous e-mails, letters and phone calls he has received over the past couple of weeks from terminated brokers, and those fearful of being terminated. Under the seven-point business plan, State Fund is to terminate those relationships with brokers that are deemed unprofitable effective Aug. 2003, but by what standards is unclear.
“State Fund, to it’s credit, has offered affected brokers an opportunity to appeal the termination, but it’s very difficult because from what I can tell from the terminations that I have reviewed, there’s just tremendous inequity involved in the terminations,” Young said. “In almost every instance, brokers were completely in compliance with State Fund’s underwriting rules and rates.”
It’s also possible that State Fund may be miscalculating the data, he added.
“I don’t mean to come down on the State Fund here,” Young said, “because I know that a great deal has been sort of put on their desk in a really short time, and they’re struggling along with everyone else to figure out ways to reduce the flow of new business, while in the meantime not unfairly penalizing California employers. Bottom line is there’s still a lot of improvement and a lot of work that needs to be done before these measures can be equitably administered.
“I don’t have any reason to believe that the State Fund will not act completely honorably in these instances, and I have every reason to believe they will do the right thing with respect to the respect to the broker terminations,” Young added. “On the other hand, we know that they are under immense pressure politically and legally from the Commissioner.”