BILL ANALYSIS Ó
SENATE COMMITTEE ON INSURANCE
Senator Richard Roth, Chair
2015 - 2016 Regular
Bill No: SB 1451 Hearing Date: April 13,
2016
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|Author: |Mendoza |
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|Version: |February 19, 2016 |
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|Urgency: |No |Fiscal: |Yes |
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|Consultant:|Erin Ryan |
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Subject: State Compensation Insurance Fund: executive and
management appointments
SUMMARY Allows the State Compensation Insurance Fund (State Fund)
board of directors (board) to appoint additional executive and
management positions, not to exceed 1 percent of the number of
the Fund's civil service employees; and sunsets that authority
on December 31, 2021.
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. Directs State Fund to be fairly competitive with other
insurers, and states the intent of the Legislature that it be
neither more nor less than self-supporting;
3. Requires the board to appoint a president, chief financial
officer, chief operating officer, chief information technology
officer, chief investment officer, chief risk officer, general
counsel, chief medical officer, chief actuarial officer, chief
claims operations officer and chief of internal affairs; and
specifies that these positions are not subject to otherwise
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applicable provisions of the Government Code and the Public
Contract Code (exempt non-civil service positions);
4. Specifies that the Milton Marks Postgovernment Employment
Restrictions Act applies to the Fund and its board and appointed
employees;
5. Specifies that the board and appointed officers are prohibited
from lobbying State Fund for two years after leaving employment
with State Fund.
This bill
1. Allows the board of directors to appoint additional
executive and management positions, not to exceed 1 percent
of the number of the Fund's civil service employees;
2. Sunsets the new authority to appoint additional positions
on December 31, 2021.
COMMENTS
1. Purpose of the bill To give the State Fund board the
flexibility to create additional exempt management
positions, allowing it the ability to avoid hiring costly
and ultimately temporary consultants without having to come
to the Legislature to approve each new position. Providing
the authority to fill these positions with appointed
employees will allow the organization to respond more
quickly to the market and accelerate progress through a
multi-year business transformation that more effectively
supports California's workers, economy, and businesses by
creating more stability in the marketplace.
2. Background The State Compensation Insurance Fund was
created by statute in 1914 to act as a workers' compensation
insurer for the state and to serve as the workers'
compensation insurer of last resort in the private market.
It also serves as a Third Party Administrator (TPA) for
self-insured public and private employers. The State of
California is its largest TPA client. Although created by
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the Legislature, it is operated as a private non-profit
enterprise, and is supposed to be "neither more nor less
than self-supporting." The State of California is not
liable for any obligations of State Fund.
As a non-profit quasi state entity, State Fund faces a
mandate different from other workers' compensation insurers:
to maintain enough market share to remain financially stable
and provide quality services, but not to compete for
increased market share or make a profit. State Fund is
required to report its business quarterly to the Governor,
including its resources and liabilities, and to use an
outside auditor to annually audit its books and operations.
State Fund insures a greater proportion of higher hazard
construction and agricultural employers than other workers'
compensation insurers; in 2012 nearly one third of its
entire book of business was construction employers. As a
result, State Fund's indemnity claim frequency is higher
than other insurers. As noted above, the role of "insurer
of last resort" has led to dramatic fluctuations in State
Fund's market share. Its market share has fluctuated from a
record high of 53% in 2000-2001 to a low of 10% in 2012.
State Fund also must manage significant organizational and
operational issues not faced by other insurers. State Fund's
workforce is part of the civil service, entitled to the same
job protections as other state workers. Until 2009, it had
only one exempt position-the president and CEO. AB 1874
(Coto 2008) granted State Fund six additional exempt
positions, including a chief financial officer, chief
operating officer, general counsel, chief information
technology officer, chief investment officer, and chief risk
officer. SB 1145 (Machado 2008) made State Fund subject to
the Bagley-Keene open meeting law. In 2013, AB 1394
(Committee on Insurance) added a chief medical officer,
chief actuarial officer, chief claims operations officer,
and chief of internal affairs to the list of exempt
positions.
3. Support According to the author, this bill supports workers
and businesses by assisting State Fund in their efforts to
recruit talent and become a more agile and efficient
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insurance organization by providing authority to the board
to appoint a limited number of additional executive and
management positions. Because State Fund currently lacks the
authority to create additional exempt management positions
and to hire employees without seeking specific legislation
for each position, it is difficult for the organization to
create a meaningful and consistent career path for the
recruitment and retention of talent with industry experience
and specialized technical skills. Currently, State Fund
often fills this gap by hiring temporary contract
consultants at costly rates. When consultants leave,
knowledge expertise and institutional memory is lost.
State Fund has sponsored SB 1451 because it will expand its
ability to attract and retain staff with industry experience
and specific expertise to continue its business
transformation and respond effectively to market demands and
changes. State Fund needs the ability to compete with the
private market for such talent to bolster capabilities
throughout the organization
4. Opposition None received
5. Prior and Related Legislation
A. SB 1145 (Machado), Chapter 344, Statutes of 2008,
authorized State Fund to appoint six "exempt" employees
in addition to the , and requires State Fund to comply
with the "Open Meetings" Law, subject to certain
exceptions.
B. SB 1406 (Emmerson), 2011-12 Legislative Session, would
have allowed the State Fund board of directors to appoint
up to 20 positions exempted from the civil service
appointment system.
C. AB 1394 (Committee on Insurance), Chapter 309,
Statutes of 2013, allowed State Fund to appoint four
additional "exempt" positions, a chief medical officer,
chief actuarial officer, chief claims operations officer,
and chief of internal affairs
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POSITIONS
Support
State Compensation Insurance Fund (Sponsor)
Oppose
None received
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