BILL ANALYSIS AB 2781 Page 1 Date of Hearing: May 5, 2010 ASSEMBLY COMMITTEE ON APPROPRIATIONS Felipe Fuentes, Chair AB 2781 (Committee on Insurance) - As Introduced: March 3, 2010 Policy Committee: InsuranceVote:12-0 Urgency: No State Mandated Local Program: No Reimbursable: SUMMARY This bill extends the sunset date for California Insurance Guarantee Association (CIGA) authority to issue bonds for the purpose of covering workers' compensation reinsurance claims from January 1, 2011 to January 1, 2013. FISCAL EFFECT No direct fiscal impact. CIGA, fully funded by private workers' compensation premiums, will likely not use the authority created by the bill. COMMENTS 1)Rationale. This bill extends CIGA bond authority created by workers' compensation reforms contained in AB 227 (Vargas) Chapter 635, Statutes of 2003, which authorized the sale of up to $1.5 billion in bonds to raise the needed funds to continue to pay and discharge worker's compensation claims. 2)Background . All California employers must provide workers' compensation benefits to their employees under state labor law. Employers must purchase workers' compensation insurance from either a licensed insurance company or the State Compensation Insurance Fund (SCIF) or employers may choose to self-insure, which means they use a "pay-as-you go" model, paying benefits to and on behalf of workers as the costs are incurred. When purchasing coverage from a private insurance company, a AB 2781 Page 2 surcharge is embedded in the premium to include CIGA coverage, which protects the insured in cases when an insurance company becomes insolvent. CIGA provides a mechanism of coverage for paying claims of insolvent insurance companies. 3)Related Legislation . AB 3055 (Committee on Insurance), Chapter 80, Statutes of 2008 extended the sunset of AB 227. AB 227 established the original bond authority addressed in AB 2781. Analysis Prepared by : Mary Ader / APPR. / (916) 319-2081