California State Compensation Insurance Fund is pursuing legislation to allow it to offer coverage to California employers who have out-of-state employees.
Currently, California-based businesses insured with State Fund must obtain a separate workers’ compensation policy to cover employees who work out of state. State Fund hopes to amend the California Insurance Code to allow it to offer workers’ comp insurance that will cover a California employer’s out-of-state employees, instead of forcing the employer to work with two or more insurance companies.
“In speaking with brokers across the state, we have clearly heard that this would benefit them by making it easier to do business with State Fund,” said Jennifer Vargen, State Fund spokeswoman. “One broker in the Bay Area commented that these days almost half of her book has some out-of-state exposure. This comment reflects the evolving nature of business and the value we can bring to the market.”
Vargen said the current insurance code is ambiguous on whether State Fund can or cannot offer coverage to California employers with out-of-state operations. So, State Fund is sponsoring Assembly Bill 228 to ensure the authority to offer out-of-state coverage is clearly articulated.
“This legislation will significantly streamline the insurance process for employers and brokers who are interested in getting a quote from State Fund, and provide greater choice and stability to the businesses of our state,” Vargen said. “And coming out of the worst recession in recent memory, removing obstacles to business and job growth in California is a good thing.”
Scott Hauge, president of CAL Insure, agreed that allowing State Fund to offer coverage to California employers with out-of-state employees would make it easier for brokers to do business.
“From a broker’s perspective, clearly this is going to be a big help administratively,” he said. “If you place coverage with The Hartford and have other carriers that write multi-state it’s a one-stop shop, whereas right now with State Fund you place California with State Fund then have to go to various other State Funds or other private carriers to obtain the out-of-state coverage.”
Hauge said it’s fairly typical for California businesses today to have a salesperson in another city and state like New York or Chicago, working out of their home. “And you’ve got to get the coverage for them in the state they’re domiciled in,” he said. “From an efficiency standpoint, (if the legislation passes) it will be a big help.”
The Devil Is in the Details
As expected, insurers are concerned about the benefits of allowing State Fund to provide out-of-state coverage; private carriers likely see State Fund’s move as increased competition.
Mark Sektnan, president of the Association of California Insurance Companies, said his group is “does have concerns.”
Among them is at what level of business outside of California State Fund wants to provide coverage. “The language in the bill is not clear,” Sektnan said. “If it’s only 5 percent of a company’s business or employees outside of California, that may be something we can talk about. But if it’s 60 percent of the workforce ouside of California, that’s a huge issue for us. The (bill) language appears to be very broad.”
Furthermore, Sektnan said his association wants to make sure that before the bill is voted on, it receives a thorough review, taking into account what State Fund’s goal is, and the effects on its current customers, as well as on agents and brokers that place business with State Fund as well as in the private market.
Sektnan noted his membership was reviewing the legislation at press time. “My guess is that we’re likely to oppose (the bill),” he said.
Although as a broker Hauge said he supports the bill’s passage, he does have questions about how claims will be handled for the out-of-state employees.
“Because State Fund is domiciled in California, one question I have is how are they going to handle out-of-state exposures?” he asked. “Maybe they will have reciprocal agreements with other carriers, but I would like to raise that question.”
If the legislation passes, State Fund said it would seek reputable, stable and experienced insurance partners through a competitive bidding process to provide front services, including filings, rating plans, rate/quote/issue technology, loss control, premium audit and claims services as required. Risk would be assumed by State Fund under its existing authority to reinsure.
Based on data from Dun & Bradstreet, State Fund estimates as many as 20,000 to 30,000 California businesses could qualify for the program.