State Fund Chief Holds High Expectations for Calif. Workers’ Comp

If all goes well, workers’ compensation reform in California may yield even greater savings than originally believed.

That is according to State Fund President and CEO Tom Rowe, who gave the keynote speech on Friday at the opening of the inaugural InsurFEST in San Diego, Calif., an agents and brokers conference that focused on leadership.

Rowe, whose long insurance career includes serving as principal of property/casualty consulting firm T. Rowe Strategies and work with Fireman’s Fund Insurance Co. and Arthur J. Gallagher & Co., referred to a new law to overhaul workers’ comp in California as a “combination of change we believe will substantially reduce lost cost trends in our state.”

“If it’s well implemented and it’s aggressively defended it could be much, much better than we originally believed,” he said.

InsurFEST replaced the Young Brokers & Agents Conference and offered an expanded conference curriculum that includes leadership training in agency management, sales and service, according to its organizers. The three-day InsurFEST conference featured a series of presentations and events focused on insurance education, sales and leadership training, as well as industry networking. With its first conference named “Bridges To Leadership,” InsurFEST offered participants 30 hours of sales and leadership workshops, as well as up to 14 continuing education credits. .

The event was not only noteworthy for IBA West because it was the first InsurFEST, it was big for the group itself. IBA West board members voted to change the group’s name from IBA West – short for Insurance Brokers and Agents of the West – to Independent Insurance Agents and Brokers of California (IIABC).

The group, which represents several thousand brokers and agents and is comprised of 31 affiliated local associations, announced in September it would consider a recommendation by the association’s board of directors to change the name of the corporation.

IBA West is merely changing its name, and maintaining its already existing affiliation with the Independent Insurance Agents and Brokers of America (IIABA); no other affiliation changes are being considered along with the name change, according to the group.

During his keynote address Rowe focused on Senate Bill 863, California’s new workers’ comp law that takes effect on Jan. 1, 2013, which promises to increase benefits for injured workers while generating a system wide savings that State Fund estimates could be in excess of $500 million the first year.

“I think SB 863 holds great promise,” Rowe said.

The organization believes the bill has so much promise that State Fund’s board recently voted to drop rates 7 percent.

What he likes about the bill is that it put the two primary parties – labor and employers – in a room together and kept all the secondary stakeholders out of the debate. A move than in the end left out medical providers, the insurance industry and applicants’ attorneys. The insurance industry has embraced the new law, while medical providers have offered little feedback and applicants’ attorneys have continued to opposed the new law.

Rowe has overseen a trying period for State fund in the last few years, as the organization has undergone several major changes.

“We have been going through a transformation,” Rowe said.

State Fund, which was created in 1913, was designed to be competitive, fair and handle claims with justice, and 100 years later that mandate “drives the transition that you see at State Fund today,” Rowe said.

State Fund began its current transition in 2010 with moves to slice into losses and run the organization more efficiently. At the start of the transition, State Fund had roughly 7,600 employees.

“We’ll end the year at a number close to 4,500 employees,” Rowe said.

The organization was misaligned, operating on market principles in workers compensation that have long passed, and a large part of that misalignment was driven by expenses, Rowe said.

Since 1995 when workers’ comp went to an open rating market, “the market got much more violent,” he added, noting that State Fund is only now just catching up with those changes, such as adopting pricing tools.

He also expressed a concern that today catastrophes are the “biggest single source of withdrawal of capital from our market,” and that three quarters of workers’ comp in California is supported by multi-line risk-bearing capital.

Another element in State Fund’s metamorphosis is a change in its broker distribution model, requiring most of the roughly 5,000 brokers and agents the entity deals with to go through one of two wholesalers.

The change, which is effective Jan. 1, 2013, establishes premium thresholds to qualify for a direct contract.

No one asked Rowe about the subject during a question and answer session, but one agent went up to him following his speech and expressed disappointment in the deal. In an interview following that exchange with the agent, Rowe defended the move as a valuable part of State Fund’s streamlining process.

“The profile of those agents who are below the premium threshold are they have less than five policies and less than $20,000 in premium,” Rowe said.

He said the remaining 1,500 agents who will be dealing directly with State Fund write 94 percent of the carrier’s volume.

The conference included several workshops, such as an agency leadership workshop “Claims and Your Client,” in which Mat Blumkin, of The Greenspan Co./Adjuster International, discussed claims, being prepared, having a plan and following that plan.

He also recommended that agents try to go out to a claim right after it happens, not only to gain experience, but to offer assistance to their client and build better relationships. He noted that many contractors show up to claims shortly after an incident to get people to sign repair and remediation contracts right.

“I highly recommend: go to a loss,” he told the audience. “It’s a zoo.”

Topics California Legislation Agencies Workers' Compensation Training Development