BILL ANALYSIS Ó
AB 228
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CONCURRENCE IN SENATE AMENDMENTS
AB 228 (Fuentes)
As Amended August 17, 2011
Majority vote
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|ASSEMBLY: | |(May 9, 2011) |SENATE: |23-13|(August 31, |
| | | | | |2011) |
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(vote not relevant)
Original Committee Reference: INS.
SUMMARY : Authorizes the State Compensation Insurance Fund
(SCIF) to provide workers' compensation coverage for employees
working out of state if the employer has its principal place of
business in California and the majority of its operations and
employees are in California.
The Senate amendments delete the Assembly version of the bill,
and instead:
1)Expand the authority for SCIF to provide workers' compensation
coverage to out of state employees.
2)Limit this expansion to employers whose principal place of
business is in California, with the majority of its operations
and employees in California.
3)State that SCIF may provide this coverage only as a reinsurer,
and through an insurer that is admitted in both California and
the state where the employees work.
4)Require the insurer with which SCIF may contract to be rated
at least A minus by A.M. Best Company, have substantial
experience transacting workers' compensation insurance on
another insurer's behalf, and have minimum surplus of at least
$100,000,000.
5)Prohibit SCIF from initiating paid advertising or soliciting
sponsorship of marketing campaigns to promote its authority to
cover out-of-state employees.
6)Sunset this authority on December 31, 2016.
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7)Require the Department of Insurance, by March 1, 2015, to file
a report with the Secretary of the Senate and the Chief Clerk
of the Assembly assessing SCIF's experience covering out of
state employees, with recommendations concerning continuing,
expanding, or limiting SCIF's authority to cover out of state
employees.
EXISTING LAW authorizes SCIF to cover, under the laws of
another state, employees of a California business who are
temporarily working outside of California on a specific
assignment, if SCIF is already providing coverage for that
business in California.
AS PASSED BY THE ASSEMBLY , this bill clarified, consistent with
existing case law, that SCIF employees are not subject to
furlough orders of the Governor.
FISCAL EFFECT : According to the Senate Appropriations Committee
analysis, the Department of Insurance estimates it will cost up
to $300,000 to prepare the mandated report.
COMMENTS : While the history of the State Compensation Insurance
Fund (SCIF) as workers' compensation insurer of last resort for
businesses unable to obtain coverage from the private market is
a nearly-century long history of adaptation and resilience,
SCIF has recently encountered some challenges that it continues
to address.
Most notably, the workers' compensation crisis of 1999 to 2003
had a significant impact on SCIF. During that period, workers'
compensation premiums tripled, growing to 6% of payroll, a move
that was unprecedented in any other state. These cost increases
were a direct result of the underpricing of workers'
compensation policies in the recently deregulated workers'
compensation market by insurers that believed they could make up
the difference through the stock market. In the wake of the Dot
Com collapse and rising medical costs, this business model was
proven to be a failure.
By 2003, 28 private insurance carriers had either become
insolvent or exited the workers' compensation market. SCIF's
market share grew to 53%, whereas historically SCIF's market
share had been around 25%. As a draft report from the
Commission on Health, Safety, and Workers' Compensation (CHSWC)
noted in late 2003, SCIF's growth had been a saving grace to the
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workers compensation insurance market, but also stated that
SCIF's financial solvency was questionable, and its failure
could threaten the stability of the entire workers' compensation
market.
Since that time, SCIF's market share has steadily shrunk. As of
2010, it was below 20%, which would be more in-line with the
post-deregulation market share SCIF held in 1997 (17%).
However, concerns about a hardening of the workers' compensation
market as costs are rising have led observers to predict that
SCIF's market share may be poised to grow.
This is the basis of the concerns that have been expressed over
this bill. If SCIF grows rapidly to serve the needs of
California's businesses, stretching its capital and surplus to
cover out of state employees that could be covered by other
insurers experienced in those other states (as they are
currently) may limit SCIF's financial flexibility, and
potentially cost California employers higher premiums.
SCIF responds that it is California businesses it would be
serving, that insurance brokers acting on behalf of the
California businesses support the bill, and that mandating the
use of another insurer admitted in both California and the other
state limits the chance that SCIF may be too inexperienced in
those states to manage its financial risks.
Analysis Prepared by : Mark Rakich / INS. / (916) 319-2086
FN: 0002902