Legislation that would prohibit workers’ comp carriers — State Fund in particular — from quoting a different price to an employer because the policy was sold through a broker is generating concerns from the industry and outright opposition from State Compensation Insurance Fund, sources in the Capitol say. AB 974, authored by Anthony Portantino (D-Pasadena), states that any price differential placed on a policy simply because the employer used a broker is discriminatory and shall not be approved by the insurance commissioner.

The language doesn’t single out State Fund, but sources say it’s in response to State Fund’s practice of charging higher premiums to policyholders who use brokers. Sources say SCIF opposes the bill as currently proposed. Other carriers have indicated a willingness to go neutral if the bill is limited to SCIF.

When State Fund announced its January 2011 rate filing in November, it made several changes to its practices, including allowing brokers to take over State Fund’s direct accounts as the broker of record. In addition, it announced that it would grant those employers who pay more than minimum premiums who don’t have, or cannot obtain, broker representation a “3% credit on their policy.”

AB 974 has begun to pick up support from broker groups, some of which say no other carrier prices policies this way and that State Fund is simply trying to keep from losing any more direct business to brokers. IBAWest, as of deadline, has not endorsed the bill.

According to State Fund spokeswoman Jennifer Vargen, employers who come to State Fund for insurance without a broker receive a quote and terms letter that reflect the 3% credit. The same is true for policyholders who renew their policies with State Fund. The credit is also reflected in the declaration page and/or annual rating endorsement.

“As a direct writer, State Fund provides many services to our policyholders, but will never market an account; the credit makes our distribution model more equitable,” Vargen opines, adding that State Fund believes brokers provide valuable services to policyholders and that brokers are where it’s likely to grow premium.

“It’s SCIF’s belief that the employer is getting less, so the 3% is an offset.”
—Jerry Conrey,
Conrey Insurance Brokers

“The direct credit, however, recognizes that many employers, particularly very small employers, don’t want or can’t get broker representation and don’t want to pay for services they aren’t receiving,” Vargen says.

Jerry Conrey, a principal with Conrey Insurance Brokers, says that by adopting the 3% credit State Fund is “acknowledging” that an employer gets better service from a broker. He thinks that State Fund also wants to prevent its 80,000 direct policies from leaving State Fund for other carriers.

“We bring valuable service. Our value is priceless. It’s SCIF’s belief that the employer is getting less, so the 3% is an offset,” Conrey says, adding that State Fund is creating a parallel track of competition. “They’re creating controversy and employers will think twice [about using a broker if they’ll] pay $300 more.”

Conrey points out that this would never fly with a private carrier. For carriers that sell both direct and through brokers, the products are completely different. There is no commingling, so there is no confusion. This has the appearance of a surcharge.

“State Fund should create a dual rate structure, so it’s not right on the declaration page,” he says.

Clark Payan, chief operating officer of IBA West, says that at IBA West “on the surface we wouldn’t argue against it. This is a bill that would affect agents and brokers [and] we want to make sure they’re fairly compensated for their time.”

Mark Sektnan, president of the Association of California Insurance Companies (ACIC), says that ACIC has yet to take a position on the bill but is concerned that although it’s presented as targeting State Fund, it appears broader.

Service Employees International Union 1000, the union that represents State Fund’s employees, says it opposes any bill that would cost jobs but at the moment does not have a position. Randy Cheek, legislative advocate for SEIU, tells Workers’ Comp Executive that he would still like the intent to be clearer.

The bill is set for hearing this week in the Assembly Insurance Committee. Interested brokers should show up.

(Filed by Bess Shapiro in Sacramento)