California Governor Proposes Selling Some State Workers’ Comp Insurer Assets

California Gov. Arnold Schwarzenegger is proposing to sell a portion of the state workers’ compensation insurer State Compensation Insurance Fund for $1 billion, Rachel Cameron, deputy press secretary for the governor, confirmed.

In his 2009-10 May Revision General Fund Proposals, Schwarzenegger proposed seeking “a private entity to purchase a portion of SCIF’s book of business, with the SCIF remaining as the insurer of last resort.”

Established by the California Legislature in 1914, SCIF currently is a self-supporting, nonprofit enterprise that provides workers’ compensation insurance to California employers at cost. With assets resulting from its book of business, surplus and reserves, selling part of the quasi-public insurer could bolster the state’s general fund.

The proposal seems to be gaining legs, as the Governor’s office forwarded the proposal to the state Legislature on June 19. As proposed by the governor’s office, the state’s Director of Finance would be authorized to act as agent for the state to sell a portion of or otherwise obtain value for SCIF assets and liabilities to an entity that the director determines will provide the best combination of: the highest price for SCIF’s insurance assets and liabilities and/or the best value to the General Fund; the greatest security for the payment of the purchase price and/or the best value to the General Fund; and demonstrated competence and professional qualifications for the continued satisfactory performance of the workers’ compensation insurance services offered for sale or other disposition.

“Notwithstanding any other provision of law, neither the approval of the Attorney General, Insurance Commissioner, nor of the Director of General Services is required for execution and implementation of the sale or other disposition of the assets and liabilities of the State Compensation Insurance Fund,” the proposal states.

The proposal has three main objectives: 1) to maintain a sound workers’ compensation system; 2) continue with the SCIF as the insurer of last resort; and 3) achieve the highest value for the state, according to Cameron.

“Given the state’s current budget situation (which is facing a $24.3 billion budget shortfall, the Governor is) evaluating all assets” and the proposal to sell a portion of SCIF’s business is consistent with that, she said.

Janet Frank, SCIF CEO, said she was aware of the legislative proposal to sell State Fund assets, and said her organization would “continue to work with all stakeholders during this process to ensure that State Fund retains its ability to fulfill our mission of providing California businesses a strong and stable option for their workers’ compensation insurance.”

This is not the first time talk of selling all or a portion of SCIF’s assets has surfaced. The issue arose under former Gov. Pete Wilson. Also in May 2008 as the state predicted a $3.3 billion shortfall for that fiscal year, Schwarzenegger’s administration confirmed that the idea for a sale was floating around and put forth by a couple of people, although at the time Cameron said it was no more likely to become a reality than any other budget proposal being discussed at that time.

SCIF’s Frank noted the issues surrounding a sale of SCIF’s assets are “incredibly complex” and “require substantial and thoughtful analysis not only because of their complexity but because the stakes associated with them are so high.”

“State Fund is obligated and positioned to provide stability, affordability and availability to California’s historically volatile workers compensation market,” Frank continued. “Without State Fund, many businesses — particularly small businesses and startups — would not be able to obtain or afford workers’ compensation insurance.

“Many Californians rely on the security and certainty State Fund offers the state’s employers, particularly small businesses and new ventures — keys to California’s economic recovery; and injured workers and their families,” she added.

Frank said the State Fund is needed as a viable and affordable option when market conditions worsen and private insurance companies scale back their product offerings as was the case in 2000-2002, when 28 private carriers claimed insolvency and left the California market. “State Fund stepped up to fulfill its leadership role as a critical safety net for the market by providing coverage for most of those policy holders and preventing a worker’s comp market collapse and subsequent drain on the state’s economy,” Frank said.

As the Legislature evaluates ways to close its budget gap, the Governor’s office “welcomes and looks forward to a debate of the proposal, but will not support anything that rolls back the Governor’s historic workers’ comp reforms,” Cameron concluded.