Oregon’s SAIF Releases Evaluation in Response to Concerns

Oregon’s State Accident Insurance Fund (SAIF) recently released a 10-point self-evaluation in response to Governor Ted Kulongoski’s concerns about the publicly-owned workers’ compensation insurance company.

The governor sent a letter to SAIF Corporation in December 2003 requesting the report.

“Over the course of the last several months, I have seen up close a debate that has been simmering about SAIF for years,” the governor wrote in the letter. “News accounts have focused on some of SAIF’s practices and raised some doubts in the public about SAIF’s accountability as a public entity.”

“We’re pleased to issue that response to the governor,” said Ken Van Osdol, public affairs director for SAIF Corporation. “The governor did ask some good, strong questions about SAIF and our business practices and business model and how we operate. It was open and it was candid.”

SAIF has been criticized for its spending on lobbyists, consultants and advertising. In December 2003, SAIF’s CEO Katherine Keene resigned after it was discovered that she made a highly profitable contract with Neil Goldschmidt, a former Oregon governor.

“There were certain areas in which SAIF had not been as accountable as we should have been,” Van Osdol stated. “We acknowledge that, and we went back and reviewed [our policy regarding consultants]. We passed some resolutions in February that changed our practices relative to how we use outside consultants.”

The not-for-profit publicly-owned workers’ comp insurance company used to be a state agency. The governor appoints the company’s board of directors, and SAIF maintains that its only income is from premiums and returns on investments. According to SAIF’s Web site, the insurer returns all excess money to its policyholders in the form of lower premiums and dividends.

“There can be a fair and open public debate about whether or not that’s how the state ought to handle that extra money,” Van Osdol continued. “If we’re going to have those discussions it ought to be on the basis of a fair and open discussion on public policy about how workers’ comp works in the state of Oregon.”

SAIF’s primary competitor, Liberty Northwest, expressed concern about SAIF’s role in providing workers’ comp insurance.

“We’re concerned about a growing lack of competitive forces active in this market,” said Brian Boe, vice president of Public Affairs for Liberty Northwest.

“Basically you have a situation where there are two companies left that are actively marketing workers’ comp insurance in Oregon, State Fund and Liberty Northwest.

“Liberty Northwest has maintained a presence here, but it has become increasingly difficult to do that when you have a state fund that is given significant market advantages (such as exemption from all federal taxes) and basically has been allowed to completely dominate the voluntary market in Oregon,” he said. “SAIF is acting as a private competitor with the advantages of being a state agency; they’ve driven out all private competition.”

Boe said that Liberty Northwest is supportive of an initiative, backed by a group called Oregonians for Accountability, that would abolish SAIF Corporation.

“The bottom line of this is if it doesn’t get fixed, employers in Oregon will have one choice and that will be the State Accident Insurance Fund,” Boe stated.

Van Osdol questioned Liberty Northwest’s motives for criticizing SAIF. “When we hear criticism, if there’s criticism of our business practices that are legitimate, we’re absolutely willing to take a look at that,” he stated. “The citizens of Oregon and the Legislature have already made a decision about how our workers’ comp system works, which is a three-way system. [Our competitor] would like to wedge the state-owned accident fund out and make that available for private carriers. I don’t believe that they have the good of the citizens of the state or businesses or injured workers at heart.”

Despite the criticisms, workers’ comp rates in Oregon have been flat over the past two years and declined for the previous 12 years, according to the governor.

SAIF addressed the following concerns at Governor Kulongoski’s request:

Making workers’ comp insurance available to as many Oregon workers as possible: SAIF said that it strives to drive down the cost of insurance and does so through its efficiency. SAIF has reduced its employees from 1,050 to 820 over an eight-year period while increasing its customer base by 30 percent. SAIF intends to conduct a comprehensive review of its strategic plan in the near future.

Public access to SAIF’s records: Almost all SAIF records are available to the public because of a recent court decision that excluded SAIF from Public Records Law. SAIF believes that the Legislature should apply Public Records Law to the public entity so access to personnel files, security measures and litigious matters can be limited.

Issuing dividends to policyholders: SAIF has not issued any dividends to policyholders since 2000. Dividends were issued between 1990 and 2000. SAIF states that this was due to workers’ comp reforms passed in 1990 and a robust economy. Policyholders claim that any SAIF surplus belongs to them and not to the state of Oregon.

SAIF’s denial of claims rates: SAIF’s denial rate is about 4 percent higher than the rest of the industry. The public entity denies about 7,000 claims each year, while 75 percent of workers do not appeal a denied claim.

SAIF’s pricing and marketing of workers” comp insurance: SAIF said that it sets prices with an intent to break even, rather than to make a profit. According to the report, private carriers are successful, with 45.8 percent of the market, while SAIF has 40.8 percent of the market share.

Reserving and discounting of reserves: SAIF concluded that reserves are properly set. Recent audits found SAIF to be under-reserved and over-reserved. Reserves are recalculated quarterly and are set aside for claims that have already been filed.

SAIF’s compensation of consultants and lobbyists and its use of advertising: SAIF believes that it has a legitimate need to hire lobbyists and consultants because there is a well-funded effort to remove SAIF from the Oregon’s workers’ comp system, as well as for the need to relay important information to decision makers in the Legislature. SAIF claimed that they have spent less on advertising than any competitors of similar size would normally spend.

Employee compensation: SAIF compensates technical and professional workers at market range and staff at the lower 25 percent of the market. Executive compensation is calculated by a composite of the lower 25 percent of the for-profit sector and from the 50th percentile of the non-profit sector.

Comparison of SAIF to other states’ workers’ comp funds: SAIF said that it is similar to Arizona and Utah but different from the state agency funds in California and Washington. SAIF claimed that Oregon is low cost-high benefit and thus SAIF’s status as a public entity is the best way to maintain stability in Oregon’s workers’ comp system.

Comparison of SAIF to other Oregon public corporations: SAIF would like to be able to insure employees that work outside of Oregon, as other public corporations have been able to do.