Calif. State Fund to Disclose Broker Commissions to Policyholders

California’s State Compensa-tion Insurance Fund has announced it will disclose broker commissions on new and renewing business to policyholders. SCIF also said it is revising its base commission structure.

Beginning Oct. 1, 2005, insurance quotes and terms letters will display the commission rate paid to brokers for the placement of their workers’ compensation policy with State Fund.

“State Fund feels that disclosure of the commission agreement between State Fund, its brokers and their clients is in the best interest of all parties,” said State Fund Acting President Jim Tudor.

By revising its commission structure, which will take effect Jan. 1, 2006, accounts with superior safety records will receive higher commissions, and accounts with less successful loss histories will receive lesser commissions. On average, commissions will range from 3 percent to 8 percent for most accounts, depending on individual account characteristics, according to State Fund.

State Fund’s Safety Incentive Performance Plan, retroactive to Jan. 1, 2005, also will allow eligible Preferred and Select Brokerages to earn additional compensation, based on their book of business evaluating total volume and loss ratio.

The changes are accomplishing two main goals, said IBA West Communications Consultant Patty Lombard. “It’s doing something for brokers and agents by offering incentives for performance and production,” she said. “It’s also saying to clients that disclosure is important, so State Fund is saying, ‘we’ll say what we pay the brokers.’ Both groups-brokers and agents, as well as their clients-are important to keep happy.”

Indeed, “Clients rely on their broker for insurance expertise and professional guidance, but, even more, brokers are deemed under law to be the ‘representatives’ of the insurance consumer,” said State Fund Vice President George Vignolo. “As such, brokers may not put their own financial interest ahead of that of a client. Disclosure of the commission arrangement provides an important tool for satisfying this long-standing legal requirement, as well as for educating consumers.”

According to Lombard, State Fund implemented the changes to reward its customers. When workers’ compensation reform legislation was passed in 2004, other workers’ comp carriers returned to the market, increasing competition for State Fund, which initially was the only provider, she said.

State Fund consulted with IBA West for advice on how to structure insurance transaction transparency so that it serves the needs of clients and brokers, according to CEO Clark Payan.

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