BILL ANALYSIS
AB 879
Page 1
Date of Hearing: April 22, 2009
ASSEMBLY COMMITTEE ON INSURANCE
Joe Coto, Chair
AB 879 (Hernandez) - As Amended: March 23, 2009
SUBJECT : Workers' compensation: self-insurance groups
SUMMARY : Requires workers' compensation self-insurance groups
to file an annual audited financial statement and an actuarial
analysis, and provides that these documents are public records.
Specifically, this bill :
1)Requires a workers' compensation group self-insurer to file
with the Office of Self-Insurance Programs (OSIP):
a) An audited financial statement prepared by an
independent certified public accountant; and
b) An actuarial analysis, by program year, of the group's
historical claim loss development prepared by an
independent actuary who is an associate of fellow of either
the Casualty Actuary Society or the American Academy of
Actuaries.
2)Provides that these documents shall be made available to the
public.
3)Specifies that no individually identifiable claimant
information, and no individual group member financial
information shall be made public.
EXISTING LAW :
1)Requires every employer to provide workers' compensation
benefits to its employees in the event of on-the-job injuries
or illnesses, and specifies that this obligation may only be
carried out in the case of private employers by:
a) Purchasing workers' compensation insurance from an
insurance company authorized to write workers' compensation
insurance in this state;
b) Obtaining a certificate from the Director of the
Department of Industrial Relations as a self-insured
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employer; or
c) Being a member employer of a group of employers that has
obtained a certificate of self-insurance from the Director
of the Department of Industrial Relations.
2)Requires self-insured employers to file an annual report with
the OSIP, but does not require either an audited financial
statement or an actuarial analysis to be public.
FISCAL EFFECT : Undetermined.
COMMENTS :
1)Purpose . According to the author, the bill is intended to
ensure that there is adequate sunshine on the financial health
of the self-insured groups that provide a substantial portion
of the workers' compensation coverage to California employers.
Specifically, the author states, "Little is known about Self
Insured Groups and yet they write a significant portion of
workers' compensation in California. They are regulated by an
obscure Office in the Department of Industrial Relations that
does not have adequate resources to verify or analyze
actuarial and financial information. Not even the Self
Insured Security Fund, which is liable for claims if a Self
Insured Group becomes insolvent, is able to access the
financial information of a SIG." The author further points
out that for traditional workers' compensation insurers, all
of the information that the bill would require to be filed by
SIGs is required to be filed as public records with the
Insurance Commissioner.
2)Self-Insured Security Fund . The Self-Insured Security Fund is
an entity established by statute comprised of all of the
holders of a certificate of self insurance, who collectively
are assessed to fund benefit payments. Its mandate is to pay
the claims of injured workers' in any case where the injured
worker was employed by a self-insured entity that has gone
bankrupt. While it is true that self-insured entities are
required to post certain deposits to secure their obligations,
these funds are frequently inadequate to cover the actual
losses of bankrupt self-insured employers.
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The Self-Insured Security Fund is the sponsor of this
legislation. Thus, the entity that will be ultimately
responsible to pay in the event of a failure of a SIG is
recommending that the two documents addressed by the bill be
subject to public review.
3)Sunshine . Why is it appropriate for the public to be able to
review SIG financial information? SIGs have suggested that
their regulator is sufficient to review their financial
health. However, it is clear that the OSIP does not have the
resources comparable to the Department of Insurance to
actually perform the type of financial analysis needed to
properly guard solvency of an insurance-like entity such as a
SIG.
Further, in a market where workers' compensation costs are
rising, it is important to make sure that SIGs are adequately
funded so that financial crises such as occurred in New York
(see Comment 4, below) are not repeated in California. Thus,
for example, an insurance company that is losing business to a
SIG might be in the expert position to understand, based on
its review of public financial data, that the SIG is
underfunded. This is a clear example of a private motivation
serving a substantial public interest.
4)OSIP regulations . OSIP is developing regulations to establish
a financial regulatory oversight structure for SIGs. However,
OSIP has maintained that it cannot provide in those
regulations that the documents at issue in this bill are
public records - despite the mandate in the California
Constitution that the people have a right to access
information concerning the conduct of the public's business,
and despite the fact that the same type of information is
readily available from other agencies when filed by other
regulated entities. Supporters point out that this bill
provides a modest degree of transparency as compared to
insurance companies or publicly traded self-insured employers.
5)CHSWC study . The Insurance Committee last year requested the
Commission on Health and Safety and Workers' Compensation
(CHSWC) to evaluate the financial regulatory structure of SIGs
in California in light of the New York experience. In New
York, several SIGs fell into deficit by hundreds of millions
of dollars, necessitating urgent governmental intervention.
The study is due later this year.
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6)Potential amendment . The bill provides that individually
identifiable information is not to be disclosed to the public.
However, the bill also provides that the actuarial analysis
is a public document. Because it is possible that some
proprietary information other than individually identifiable
information may be in an actuarial analysis, the author may
wish to consider clarifying that the document to be made
public is "an actuarial certification of reserve adequacy" as
opposed to the analysis itself.
7)Technical amendment . The language prohibiting release to the
public of claimant individually identifiable information is
included in a sentence that also precludes disclosure of
financial information about members of the SIG (as opposed to
the SIG itself). The sentence structure needs to be amended
because it might be read to only limit disclosure of claimant
financial information.
REGISTERED SUPPORT / OPPOSITION :
Support
Self-Insurers Security Fund (sponsor)
Association of California Insurance Companies
California Applicants' Attorneys Association
California Nurses Association/National Nurses Organizing
Committee
Employers' Direct Insurance Company (EDIC)
Opposition
None received.
Analysis Prepared by : Mark Rakich / INS. / (916) 319-2086