News Currents
Bill introduced to allow DOI to oversee California State Fund
California Gov. Arnold Schwarzenegger and Insurance Commissioner John Garamendi have jointly submitted legislation, inserted into Assembly Bill 2125, to establish oversight responsibility and regulatory authority for the State Compensation Insurance Fund. According to the commissioner’s office, the agreement should resolve a long legal dispute between the Department of Insurance and State Fund over the commissioner’s authority.
In 2003, the workers’ compensation carrier filed a lawsuit against DOI to prevent it from conserving SCIF under risk-based capital statutes. In 2004, a judge ruled that SCIF is subject to risk-based capital regulations, but SCIF vowed to appeal.
The new proposal, submitted by Garamendi and Schwarzenegger on Aug. 15, would make SCIF subject to the same regulatory authority as other domestic insurers writing workers’ compensation insurance. Language was inserted into AB 2125 giving the commissioner limited authority to regulate SCIF. The amendments reaffirm SCIF’s status in the insurance code, as well as reaffirms the commissioner’s duties and obligations concerning oversight of SCIF as a workers’ compensation insurer. The amendments also recognize that SCIF is a public enterprise fund and has a unique governance structure established in statute.
Additionally, the amendments would require the commissioner to report to the governor and legislature when SCIF’s financial condition reaches certain thresholds. However, the language does not allow the commissioner to place State Fund in conservation, liquidate the carrier or remove its authority to transact insurance. That way, the commissioner could take action when SCIF’s risk-based capital is insufficient while keeping the state’s leaders apprised of such action, Schwarzenegger and Garamendi said in a statement.
“In a situation where the commissioner would normally order a liquidation, the proposal would instead require the commissioner to recommend a course of action to the governor and legislature to remedy the condition,” they said.
The initial proposal suggested increasing SCIF’s investment flexibility, returns and cash flow, by allowing SCIF to make investments similar to private insurance carriers. Theoretically, that would have allowed SCIF to profit from its cash holdings.
Some in the industry questioned whether that provision, which would have allowed SCIF to buy stock in its competitors, would have allowed State Fund to unfairly profit from its tax-free status. However, the provision that would have expanded the type of investments the State Fund could invest in was removed from the bill, according to Normal D. Williams, assistant deputy commissioner at the California DOI.
After its submission, AB 2125, with the amendments, passed the Senate banking, Finance and Insurance Committee with a vote of 8-1. At press time, the bill was on the Senate Floor.
The legislation assures appropriate regulation of State Fund as an insurance carrier while preserving the authority of the Governor and State Fund’s Board of Directors over its assets and operations as well as preserving the oversight responsibility of the legislature, Williams told Insurance Journal. Furthermore, “SCIF has agreed that when the legislation passes, it will drop its long-standing lawsuit,” he said.
State Fund Acting President, Jim Tudor released a statement saying, “State Fund supports the legislation submitted today by Governor Schwarzenegger and Insurance Commissioner Garamendi and welcomes the resolution of the critical issues between State Fund and the Department of Insurance. State Fund would like to thank the Governor and the Insurance Commissioner for their leadership in drafting this legislation.” Tudor was unavailable for further comment by press time.
Established by the California Legislature in 1914, San Francisco-based SCIF is a self-supporting, nonprofit public enterprise that provides a permanent market for workers’ compensation insurance coverage at cost to California employers. Web site: www.scif. com.
To view the letter and amendments submitted by Schwarzenegger and Garamendi, visit http: //gov.ca.gov/index. php/pressrelease/ 3547/.