BILL ANALYSIS Ó
SENATE COMMITTEE ON INSURANCE
Senator Richard Roth, Chair
2015 - 2016 Regular
Bill No: AB 2887 Hearing Date: June 22,
2016
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|Author: |Committee on Insurance |
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|Version: |February 25, 2016 |
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|Urgency: |No |Fiscal: |No |
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|Consultant:|Erin Ryan |
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Subject: State Compensation Insurance Fund: out-of-state-risks
SUMMARY Repeals the sunset date on the statute authorizing the
State Compensation Insurance Fund (State Fund) to provide
limited workers' compensation insurance coverage for
out-of-state employees of California employers, as specified.
DIGEST
Existing law
1. Establishes State Fund, a quasi-state agency, for the purpose
of transacting workers' compensation insurance, to be
administered by a board with full power, authority and
jurisdiction to conduct the business of the fund;
2. Authorizes State Fund to insure a California employer against
the employer's liability for workers' compensation benefits,
under the law of any other state, for California employees
temporarily working outside of California on a specific
assignment if the fund insures the employer's other employees
who work within California;
3. Until December 31, 2016, authorizes State Fund to insure a
California employer whose principal place of business is
California, provided the majority of the employer's operations
and employees are located in California, against liability for
workers' compensation benefits under the laws of any other
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state, if the Fund insurers the employer's employees who work in
California, as specified;
4. Requires the California Department of Insurance (CDI), on or
before March 1, 2015, to issue a report to the legislature
assessing the experience of State Fund insuring employees in
other states pursuant to #3, and to make recommendations
concerning its continuation, limitation or expansion;
5. Prohibits State Fund from paid advertising or solicitations to
market or promote its ability to insure qualified employers
under the laws of any other state.
This bill
1. Deletes the December 31, 2016 sunset on the ability of
State Fund to insure employees of California employers who
are working in other states, as specified, and deletes an
obsolete CDI report requirement.
COMMENTS
1. Purpose of the bill To make permanent a moderate expansion
of State Fund's authority to provide coverage for
non-California employees of California employers that was
enacted in 2011 with a sunset date of December 31, 2016. (AB
228 Fuentes, Chapter 670 Statutes of 2011). That legislation
required the Insurance Commissioner (IC) to report to the
Legislature on the effects of this expanded authority. That
report has been completed and found that the program was
operating as expected with no unintended consequences.
2. Background Prior to the adoption of AB 228 in 2011,
existing law permitted State Fund to insure a California
employer against the employer's liability for workers'
compensation benefits, under the laws of any other state,
for California employees temporarily working outside of
California on a specific assignment if State Fund insures
the employer's other employees who work within California.
AB 228 expanded that authority to include employees of a
California employer that work permanently outside of
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California if the majority of the California employer's
employees work in California. AB 228 was intended to reduce
the time, effort and paperwork of California employers who
need to purchase workers' compensation insurance regardless
of where their employees are located.
Since State Fund is licensed only in California, the
insurance coverage it issues for non-California employees is
issued by an insurance carrier licensed in the out of state
jurisdiction, with State Fund operating in the capacity of a
reinsurer. State Fund is then liable for 100% of incurred
losses and loss adjustment expenses arising out of each
accident, occurrence or claim covered by the policies,
although they are administered by the ceding insurer.
According to the report issued by CDI assessing the program
expansion, the demand for insurance as allowed by AB 228 has
been minimal, comprising less than 0.1% of State Fund's
total policies. State Fund issued four such policies in
2012, 42 in in 2013 and 53 in 2014. Its losses on the
out-of-state business have been very low, with loss ratios
of 0% in 2012 and 2014, and 0.3% in 2013. CDI has
recommended extending the authority.
3. Support The Assembly Insurance Committee introduced this
bill to make permanent a moderate expansion of State Fund's
authority to provide coverage for non-California employees
that was enacted in 2011, with a sunset clause. AB 228 --
the legislation that authorized this expansion, required the
IC to report on the effects of State Fund covering more
out-of-state employees. That report was completed, and
concluded that the program was operating as hoped, without
any unintended consequences. Accordingly, to ensure the
continued benefits for some California employers, the
Committee determined that the sunset date ought to be
repealed.
4. Opposition None received.
5. Prior and Related Legislation AB 228 (Fuentes) Chapter 670
Statutes of 2011 granted State Fund the authority to insure
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permanent employees of California employers in other states,
with a sunset date of December 31, 2016.
POSITIONS
Support
State Compensation Insurance Fund
Oppose
None received
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