In line with demands from Compline, State Compensation Insurance Fund has changed its policy and will allow producers to start using full Brokers of Record letters on its direct business. Commissions will be paid. In addition, presumably in order to remain competitive, it has increased the availability of merit rating on small accounts from 25% to 40%. But there is also bad news: It is that State Fund will charge 3% less to its direct customers than for its brokerage business. IBAWest – which State Fund describes as “its partner” agreed to this differential. Compline did and does not.
“This is a major victory for the small businesses of California and for the producers who see themselves as consumer advocates for small business,” says Dale Debber, president of Compline who created the Compline coalition and was joined by several trade organizations to demand that State Fund change its policies or face legislation. Some 80,000 employers written directly by State Fund now have the ability to choose their own brokers.
The positive change comes nearly two months after Debber, who is both president of Compline and publisher of Workers’ Comp Executive, publicly called upon State Fund to end its unfair business practice of preventing brokers from competing to provide the best possible service to SCIF’s policy holders.
“We have been holding meetings in Sacramento discussing legislation to force the change,” Debber says, “and fairness to small business is clearly an interest of the legislature. In addition we have held preliminary discussions with legal counsel on some interesting issues. I’m glad State Fund has seen the light and changed its policies.”
“But we will not stand idly by and submit quietly to a 3% difference in pricing between direct and brokered business,” Dale Debber, Compline.
“But we will not stand idly by and submit quietly to a differential in pricing between direct and brokered business, Debber says. “This is an attempt by State Fund to continue what I can only call its bullying tactics. Whether this stands the test of fair procedure and fair competition or not and whether we need to go to the legislature or to the courts or not remains to be seen.
Merit Rating Changes
As for the changes in merit rating, behind the scenes Compline prepared two separate reports showing that State Fund’s rating methodologies were unfair to small business. “They used to start merit rating of 25% at $25,000 in premium but gave up to 40% to employers with over $100,000 in premium. “This resulted in large accounts paying nearly significantly – as much as 50% - less per $100 of payroll than small accounts. Such unfairness by a quasi-state agency results in small guys not being able to compete with big guys, Debber explains. The reports found interested parties in both the Department of Insurance - and with Commissioner elect, then candidate Dave Jones, as well as with other members of the legislature.
“This resulted in large accounts paying nearly significantly – as much as 50% - less per $100 of payroll than small accounts. Such unfairness by a quasi-state agency results in small guys not being able to compete with big guys,” Dale Debber
State Fund has started notifying brokers that its direct premiums will be 3% less than the agency rates, and it will pay 10-12% commission on new business, either to new accounts or new ventures. This is a change from the old 8% commission. SCIF says it will also pay commission on accounts that have a lapsed.
“There were a chorus of voices on this and the other commission and distribution issues including internal,” Jennifer Vargen State Fund spokesperson told Workers’ Comp Executive. “Tom was clear with everyone that he was reviewing all distribution strategies. We hope for reporting that acknowledges this.”
“There were a chorus of voices on this and the other commission and distribution issues including internal,” Jennifer Vargen State Fund
The broker of record change has been a topic of occasional discussion between IBAWest and State Fund for over 15 years, but was spurred on by Debber in his role at Compline. He put together a coalition of support comprised of producer associations including the Alliance of Insurance Agents and Brokers, PIA Western Alliance, Insurance Agents and Brokers Association of California and to a limited extent the Insurance Brokers and Agents of the West. He insisted State Fund change its policies and threatened legislative action in the upcoming session if it didn’t.
“When I initially met with Tom Rowe, he’d already started a review of their [policies and strategies],” says Clark Payan, executive officer of IBA West. “We were confident that once they were able to take a look or a relook at everything they were doing, they would [make changes]. Ultimately, this is good for brokers and policy holders.”
“I think all the credit has to go to Dale because he’s the one that instigated this. This is a change brokers have been trying to get since State Fund started using brokers. He’s fought for brokers and employers, says Jerry Dunn, vice president of Owen Dunn Insurance in Sacramento.
Debber along with Jerry Conrey, Vice president of the Alliance of Insurance Agents and Brokers, urged State Fund’s board at its last meeting to direct management to end the errant ways. Debber says the issue isn’t over yet as the differential pricing between direct and broker business needs to be addressed.”
“The good news is that employers will have more choice in dealing with State Fund,” says Jennifer Vargen, spokeswoman for State Fund. “We certainly appreciate everyone voicing their opinions on it. More than anything the timing was helpful with Tom Rowe coming on board, so clearly all of our strategies were under review.
For past coverage of Compline’s efforts click on links below
Is Another Culture Change Coming at State Fund?
BOR Presentation Made at State Fund Board Meeting
State Fund Blows Off Broker-Client Ownership
SCIF Broker Policy Unfair to Brokers and Employers