BILL ANALYSIS Ó
SENATE INSURANCE COMMITTEE
Senator Ronald Calderon, Chair
SB 36 (Hueso) Hearing Date: April 24, 2013
As Amended: April 8, 2013
Fiscal: Yes
Urgency: No
SUMMARY: Would require the California Department of Insurance
(CDI) to post on its Internet Web site the annual and quarterly
statements regarding the insurer's conditions and affairs that
have been submitted by workers' compensation insurers.
DIGEST
Existing law
Requires every insurer doing business in this state to make and file
with the Insurance Commissioner annual and quarterly financial
statements, as prescribed. (Ins. Code § 900.)
This bill
Would require that those annual and quarterly financial
statements filed with the Insurance Commissioner by workers'
compensation insurers be published on the CDI's Internet Web
site.
COMMENTS
1. Purpose
According to the author, California's worker's compensation
system is a complex web of regulations. Since 1995, when
insurers were allowed far greater flexibility in setting
rates, the market has suffered from unpredictability.
There have been challenges related to the insolvency of
carriers, inherent volatility of premiums, frequent tension
between claims costs and projections, as well as, the
practices of calculating proper reserves.
SB 36 (Hueso), Page 2
Additionally, the author states that variability in the
market makes it difficult for businesses to plan, and makes
California a less attractive place to do business. In
addition, insurer insolvencies have been costly to the
state's employers, injured workers, and residents. Employers
are expected ultimately to pay for the unresolved claims of
insolvent insurers. Insolvencies can delay benefits to
injured workers, and residents are affected because workers'
compensation costs may discourage employers from locating in
the state. The author believes that Senate Bill 36 will
administer a mechanism to identify key markers of economic
volatility among carriers and underwriters to protect
against insolvencies and provide greater transparency within
the workers' compensation insurance market.
2. Background
A. Insurance Code Section 900 Reports. Insurers must
file an annual and quarterly report "exhibiting its
condition and affairs," as prescribed by the Insurance
Commissioner. CDI advises that these reports are to be
submitted on forms promulgated by the National
Association of Insurance Commissioners. Annual and
quarterly statements include a multitude of schedules
and lists covering a variety of subjects including
organizational information; assets; liabilities,
surplus, and other funds; income, cash flow; losses and
loss expenses; ceded reinsurance; holding companies;
statements of premium written by line of business;
information concerning activities of insurer members;
and other financial and operational information.
B. Publication of Reports Online. CDI's website
provides access to the annual and quarterly reports
under the Company Profiles page. This page may be
accessed from the CDI Home Page ( www.insurance.ca.gov )
by selecting "Company Profiles" from the Online Services
drop-down menu in the upper right-hand corner or
selecting the Consumer menu in the upper left-hand
corner, hovering over the Licensee Information submenu,
and selecting Search Insurance Company Profiles. Once
the user reaches the Company Profiles page, the
Insurance Company Profiles link will take the user to
the company profile search engine that will direct the
user to the company profile page with links to financial
documents.
SB 36 (Hueso), Page 3
1. Arguments in Support
A. Voters Injured at Work points to a report published
in 2009 by the RAND Institute for Civil Justice, Center
for Health & Safety in the Workplace, titled
California's Volatile Workers' Compensation Insurance
Market: Problems and Recommendations for Change. The
report recommends that the annual and quarterly
statements be published online by CDI. As noted by the
report, although the information in these reports is
already publicly available, it is often difficult for
the average person to retrieve it. The report suggests
that publishing them online would provide much wider
access to the huge amount of information contained in
them.
B. The author also cites the RAND report and states
that this report investigated the volatility of
California's workers compensation insurance industry to
identify the different factors that contributed to
market instability and the large number of insolvencies
following price deregulation. The report recommended
policy changes related to transparency and highlighted
the importance of improving predictability in the
workers' compensation system. According to the report,
the lack of predictability was repeatedly emphasized as
a key driver of the volatility in the market following
open rating. Furthermore, the report noted the benefit
of enhancing the transparency of the system. The author
argues that providing more information to investors and
other market participants allows them to better monitor
the actions of workers' compensation insurers and can
help curtail some of the excesses that can occur in an
open-rating setting.
1. Arguments in Opposition
A. Zenith Insurance Company and Liberty Mutual
Insurance Group object to the bill because it singles
out workers' compensation insurance companies. They
point out that most workers' compensation insurers in
the California market are multiline insurers, meaning
that they might also underwrite commercial and/or
personal lines of insurance. The financial statements of
these companies would include all lines of insurance the
SB 36 (Hueso), Page 4
company or company group underwrites in this state.
Unless the insurer is a mono line company, meaning they
only underwrite workers' compensation insurance in
California, the workers' compensation data would not be
segregated, so there could not be a meaningful
comparison of data between insurers.
B. Zenith Insurance Company and Liberty Mutual
Insurance Group also point out that there are many
resources that currently report data in detail on the
financial performance of workers' compensation insurers
in the California market. For instance, the California
Workers' Compensation Institute publishes an annual
report that specifies the financial experience of
insurers in California. The Workers' Compensation
Insurance Rating Bureau and the Department of Insurance
publish detailed information as well. Available on the
Department's web site are annual market share reports
that break down each workers' compensation insurer's
premium volume, market share, earned premium, losses
paid and loss ratio. Additional reports and studies are
available from the Commission on Health, Safety and
Workers' Compensation, National Association of Insurance
Commissioners and the Department of Insurance from
public hearings relative to the workers' compensation
pure premium filings.
POSITIONS
Support
Voters Injured at Work (Sponsor)
Opposition
Association of California Insurance Companies
Zenith Insurance Company
Liberty Mutual Insurance Group
Consultant: Hugh Slayden (916) 651-4110
SB 36 (Hueso), Page 5