Open claims files handled by California Insurance Guaranty Association drop

November 5, 2006

The number of open claims files being handled by the California Insurance Guaranty Association (CIGA) has dropped from a high of 85,000 to around 48,000, of which more than 40,000 are the result of workers’ compensation insolvencies, new CIGA Executive Director Wayne Wilson told the Insurance Brokers and Agents of the West Board of Directors at its meeting on Oct. 11.

Wilson, in his third month running the largest guaranty fund in the country, gave IBA West directors a snapshot of current conditions at CIGA in remarks at the IBA West Fall Conference at the Sacramento, Calif., Grand Sheraton hotel.

Wilson indicated that the 2 percent surcharge on workers’ compensation policies is likely to be continued into the indefinite future, although the nature of the assessment will be changing at the end of 2007.

The legislative authorization that increased the insolvency surcharge from 1 percent to 2 percent is set to expire at the end of next year. At that time, the insolvency surcharge will drop to 1 percent, but it will be accompanied by a new 1 percent surcharge intended to pay for bonded indebtedness CIGA incurred to meet its obligations. Consequently, the net assessment will remain at 2 percent.

In addition to the workers’ compensation insolvency fund, CIGA also maintains an insolvency fund for automobile/ homeowners insurers, and a third fund for “all other” types of insurance. Both of the latter two funds enjoy a surplus and are not currently subject to assessments, Wilson said.

CIGA has issued approximately $750 million in bonds, which represents about half of the total borrowing authority provided by the California Legislature. One little known fact about the borrowing power, Wilson said, is that CIGA is authorized to impose any surcharge necessary to ensure that bonds are repaid. The current 2 percent cap applies only to the insolvency assessment, he said, although he added that CIGA has no plans given its current cash flow projections and barring unforeseen circumstances to raise the combined compensation assessments above 2 percent.

In response to questions, Wilson said he is not worried about possible insolvency of the California Earthquake Authority (CEA) in the event of a major earthquake, because CEA is expressly excluded from CIGA coverage. Of greater concern however, he said, is the potential workers’ compensation losses that would arise out of a major earthquake, which would be covered by the guaranty fund.

Wilson, although new to CIGA, is a highly-respected insurance industry veteran, according to IBA West. He is a former chief counsel to the Nevada Division of Insurance; represented IBA West in the 1980s as a partner in a Sacramento law firm; served as regional vice president of the American Insurance Association; and, before joining CIGA, oversaw government affairs nationally for the Farmers’ Insurance Group.

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