Calif. State Fund Board: Drop Rates 7%

California’s State Compensation Insurance Fund’s board has voted for a 7 percent decrease in its 2013 rates, a move that reflects State Fund’s anticipated savings from a workers’ compensation reform law set to take effect on Jan. 1, 2013.

The rate will apply to a rate filing that’s currently under review with the California Department of Insurance. This is State Fund’s first tiered rating plan.

When a review is complete State Fund will revise its filing.

“We anticipate they will be effective toward the end of the first quarter in 2013,” said Jennifer Vargen, a spokeswoman for State Fund, following the board’s announcement of its decision earlier this month.

The board voted on the rates during a two-day strategic retreat session in Napa.

State Fund’s estimate is that $543 million in immediate savings will be generated by Senate Bill 863, a workers’ comp reform package signed into law by Gov. Jerry Brown in September. The law has several regulations that need to be put in place before it takes effect on Jan. 1, 2013, and savings estimates range up to as much as $1 billion.

State Fund, which said prior to its decision it was looking at rate reductions of between 5 and 7 percent, has said any rate reductions are dependent how those regulations are drafted.

During the retreat the board also declared a 100 million dividend for the 2012 policy year. That dividend represents about a 10 percent estimated annual premium for policyholders.

“State Fund has made significant progress in its restructuring plan that is on track to reduce annual expenses by $300 million over a three-year period,” Tom Rowe, State Fund president and CEO, said in a statement. “We’ve made difficult but necessary decisions over the past couple of years and our improved efficiency, disciplined pricing combined with solid investment returns enables us to return money to California employers who are still struggling with a slow economic recovery. State Fund is committed to serving California’s businesses and employees and helping to grow California’s future.”

As part of that restructuring State Fund in September announced a change to 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.”

The restructuring plan at State Fund has been underway since 2010, and included massive reductions in the ranks of State Fund employees last year. Many of those workers left through attrition, and not layoffs as originally planned. The restructuring decision followed a detailed review of State Fund’s business, including comparing State Fund to other state funds and specialty companies that write workers’ compensation in California.