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Soft Market Offers Many Options to Scandal-Plagued CarrierMajor Associations Leaving State Fund

State Compensation Insurance Fund (State Fund) might have shown Western Insurance Administrators and its several groups the door, but the association members of other such safety groups are finding their own way out and are seeking workers' compensation coverage from other carriers. The reasons for jumping ship are numerous, but chief among them are the scandals and investigations surrounding State Fund as well as softer pricing from other carriers.

It is curious, says one industry observer, that State Fund has ceased doing business with former director Frank Del Re's organization [see Workers' Comp Executive article here], which insured an estimated 25,000 employers but seems to be keeping its relationship with Kent Dagg of the Shasta Builders Exchange, who was asked to leave the board at the same time.

California Apartment Association

The California Apartment Association and its 19,000 members decided in June to separate from State Fund and enter into the open market, according to the association's chief operating officer, Tom Bannon.

The motivations for CAA were threefold: Not only could the association find cheaper pricing from other carriers, it also could provide workers' compensation coverage for the 30% of its members currently underserved by State Fund's group plan, and provide members with other full lines of service, says Bannon.

"We have a very diversified membership, and we found ourselves not being able to best serve our members with just State Fund," says Bannon. "In the State Fund groups you are limited...we found that though State Fund served a niche within the organization, we needed to provide options, and when you come down to it, that means multiple carriers."

To do that, CAA launched its own insurance agency, California Apartment Rental Housing Brokers Inc., also called the CAA Value Insurance Plan, through its for-profit subsidiary, California Rental Housing Services Corp. It will be able to receive commissions.

"We are very competitive because of our multi-carrier approach. I'm not aware of us losing one of our members due to pricing," says Bannon, who noted that members still can enjoy discounts, though he declined to specify the amount.

California Restaurant Association

The California Restaurant Association has allowed its contract with State Fund to lapse, and still is considering whether to renew, according to association president Jot Condie.

"We think the groups are hugely valuable, but given the developments at State Fund, we just weren't sure about the final position of the group program review going on," says Condie. "As a result, we started looking for other carriers and other options for our membership."

"In the State Fund groups you are limited...we found that though State Fund served a niche within the organization, we needed to provide options, and when you come down to it, that means multiple carriers."
–Tom Bannon, California Apartment Association

The restaurant association represents 22,000 locations, and a number of those businesses already have decided to leave State Fund of their own accord, while others have opted to stay, according to Condie, who noted that a primary reason was pricing. Once association members began to notice current pricing trends, a number of them determined that the 6% discount they were receiving from State Fund didn't match up to the cost savings they could experience elsewhere, he said.

"State Fund is just not competitive right now, so business is leaving State Fund in droves and going to these other companies [that] are much cheaper," says broker Rich Norlie. "It is so competitive and so soft that almost every carrier has an appetite. There are still a few classes that only State Fund will write, but a drywall guy now has three or four carriers who will write him."

One broker in Northern California noted that Republic Indemnity, one of the firm's carriers that writes a number of association programs, is "on the hunt for associations to pluck away."

"They already have quite a few, and they mentioned that they are looking for more," he says.

Republic Indemnity declined comment.

Because of recent and very public happenings at State Fund, it has publicly noted that its contract has been renewed with Golden State Builders Exchange, but it declined to comment on the status of other associations.

"I got the impression they were more concerned about market share than being the carrier of last resort and assisting industries in loss control and things of that nature. They were pretty aggressive, and I thought that was over the top."
—Tom Bannon, Calif. Apartment Association

"It is a competitive process, so for competitive reasons, I don't think we could go into detail about whose renewal we are working on or who is going to renew," says State Fund spokeswoman Jennifer Vargen. "We don't discuss the specific details of who we are doing business with in terms of our groups and associations." This is not inconsistent with other carriers.

That State Fund is less than eager to see these and other associations pack their bags is an understatement, according to Bannon, who says that when CAA ended its relationship with State Fund, the incumbent carrier pulled out all the stops in an effort to keep the association's many members.

In an Aug. 13 letter to CAA members, State Fund encouraged a number of departing participants to join a travel park association in Northern California for a fee of $50.

"I got the impression they were more concerned about market share than being the carrier of last resort and assisting industries in loss control and things of that nature," says Bannon. "They were pretty aggressive, and I thought that was over the top."

State Fund's position in the market has traditionally been moderate, so in a hard market, they tend to do very well, says broker Greg Osorio. This soft market has proven to be a different story. Osorio's outfit, Osorio Insurance, has replaced about 80% of its State Fund business.

"Candidly, it was a little risky to walk away from a program you have been involved with for a number of years, but for us, our members were pretty adamant," says Bannon. "I think the State Fund situation has awakened a number of people to be prudent. I think we were one of the first to jump, and obviously State Fund wasn't happy, but our members are."

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