BILL ANALYSIS Ó
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
AB 228 (Fuentes)
Hearing Date: 8/15/2011 Amended: 7/12/2011
Consultant: Bob Franzoia Policy Vote: L&IR 5-0
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BILL SUMMARY: AB 228 would expand the authority of the State
Compensation Insurance Fund (SCIF) to permit the fund to insure
for the purposes of workers' compensation coverage out-of-state
employees of a qualified in-state employer. This bill would
require the Department of Insurance to report by March 2015
regarding the experience of the fund in engaging in insuring
out-of-state employees of in-state employers.
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Fiscal Impact (in thousands)
Major Provisions 2011-12 2012-13 2013-14 Fund
Revision of SCIF Any new costs covered by existing
author-Special*
authority to insure ity to insure for workers' compensation
insurance coverage
Report Up to $300 one time Special*
* State Compensation Insurance Fund
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STAFF COMMENTS: This bill meets the criteria for referral to the
Suspense File.
SCIF, which was established by the Legislature in 1914, is a
self-supporting, non-profit enterprise that provides workers'
compensation insurance to California employers at cost, with no
statutory liability for the state. SCIF operates as a
competitor with private insurers and as the insurer of last
resort for employers who cannot affordably purchase workers'
compensation coverage from the private market.
Existing law provides that SCIF may insure a California employer
against his liability for workers' compensation benefits, under
the law of any other state, for California employees temporarily
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working outside of California on a specific assignment if the
fund insures the employer's other employees who work within
California. This bill authorizes SCIF to insure an employer
whose principal place of business is in California, provided
that the majority of the employer's employees are located within
California, against his or her liability for workers'
compensation benefits under the law of any other state, if the
fund insures the employer's employees who work within
California.
This bill provides that SCIF is only authorized to transact
insurance by contract with an insurer that has responded to a
request for proposal from SCIF and is admitted to transact
workers' compensation insurance in California and in the
out-of-state jurisdiction where the employees are located. The
contracted insurer must meet all of the following criteria:
(1) The insurer has an A minus (A-) rating or better from A.M.
Best Company.
(2) The insurer has substantial prior experience in transacting
workers' compensation business on another insurer's behalf in a
fronting arrangement.
(3) The insurer has a minimum surplus of one hundred million
dollars ($100,000,000).
Of the 26 state funds nationally, 16, including Arizona, Oregon
and Utah, serve their in-state employers by providing coverage
for out-of-state employees. These funds use a fronting
arrangement whereby another carrier provides the services in the
other states. The carrier pays taxes in those states and passes
those taxes along in their charges to SCIF. All 16 use one of
two companies to provide the services.
The Department of Insurance estimates costs of $300,000 for a
report assessing the experience of the State Compensation
Insurance Fund and making recommendations concerning the
authorization and its continuation, limitation or expansion with
special attention to the extent of advantages this practice
offers California employers, the California workers'
compensation marketplace, and the impact of this class of
insurance, whether pro or con, on the fund, its management, and
the California marketplace.
Staff notes the authority for SCIF to insure in this manner is
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discretionary. That is, SCIF may decline to offer coverage for
out-of-state employees of a California employer if it determines
the employees or the other state's workers' compensation laws do
not meet SCIF standards.