Western Insurance Administrators (WIA), which administers some of State Compensation Insurance Fund's largest safety groups, is directly soliciting its group employer members to move their workers' comp business away from SCIF and into another carrier. WIA was dropped by State Fund as a group administrator in September. There was no public or transparent explanation provided as to why SCIF dropped its largest administrator.

The groups involved, so far as Workers' Comp Executive can tell at this point, are Western Regional Master Builders Association, which comes in at least three separate flavors covering class codes 3030 (steelworkers), 4000 (digging and dredging) and 5606 (general contractors). All of them have an Ex-Date of Jan. 1, according to information obtained and reviewed by Workers' Comp Executive.

Questions have arisen from producers as to whether proprietary information is used for solicitation.

The move is made against quite an interesting backdrop, that of former State Fund director Frank DelRe, who also owns Western Insurance Administrators. DelRe was ousted by the Governor's Office as a State Fund director at the very beginining of the scandals at State Fund. WIA administered as many as eight State Fund safety groups before State Fund dropped it, with an estimated 25,000 California employer policyholders. And now DelRe's organization is soliticing business from those groups.

Employers are urged by the solicitation to send in their most recent State Fund payroll report or to ask their brokers to contact Tangram Insurance Services. It is unknown what percentage of the members of the group are represented by brokers and what percentage have been written on a direct basis by State Fund. Policyholders are members of the association in most cases only by virtue of being placed in the group by State Fund, based on their geographical location.

Tangram is a respected and reputable managing general underwriting affiliate of the Heffernan Group, itself a very large and respected brokerage.

The mailer sent out by the group from the WIA office in Long Beach says the new program through Tangram likely can bring the employers "significant savings over the State Fund." A copy of the letter was obtained by Workers' Comp Executive. No mention was made of which carrier is underwriting the business, and both entities declined to comment.

Tangram's website indicates that it also has programs for construction and other risks having trouble finding coverage due to tougher classes or adverse losses.

The move takes advantage of recent scandals revolving around State Fund and its group business. The California Restaurant Association recently moved its group away from State Fund.

Agent and Broker Clients Directly Solicited

The move may reflect other associations removing themselves from the taint of State Fund's numerous alleged ethical lapses and questionable business practices over the past year. Still, what Western Insurance Administrators is doing raises some troubling questions, producers say.

The employers are State Fund insureds even if their safety group and its administrator are no longer affiliated with State Fund. Brokers tell Workers' Comp Executive that State Fund generally decided which safety group their clients would be placed in to qualify for premium discounts.

Steve Young, general counsel for IBAWest, says that although brokers may not appreciate such direct solicitation of their clients, it's likely not illegal.

"If the broker is doing business with an intermediary and they haven't expressly documented their contractual rights ... then the broker is in a difficult position."
—Steve Young,
IBA West

"If the broker is doing business with an intermediary and they haven't expressly documented their contractual rights ... then the broker is in a difficult position," Young says.

Clark Payan, chief executive officer for IBAWest, seconds brokers' concerns. The shakeup at State Fund has safety groups looking at alternatives for their employer members, but if MGA directly solicits business, then brokers who service those employers have every reason to be upset.

"There would definitely be some questions as to what's going on. If a broker placed business with State Fund, and State Fund had this safety group available with perks including a premium discount...and now this group solicits these policyholders. [There] has to be some reference somewhere to who controls that issue. I suspect some brokers might have questions," Payan says.

Payan says ultimately it's up to the employer to decide what company it wants to do business with. There is also some question as to what agreements were signed in relation to joining the safety group.

"You have different status and different longevity depending on how long you've been a safety group," Payan says. "If you set up XYZ safety group and you've been with State Fund 20 years, the agreement might be different for someone who set up a safety group more recently."

"Obviously, there is a question of the solicitation. Once you become a member, they have your contact information. What are the legal parameters here? What about privacy?" Payan asks.

The second page of the solicitation asks employers to provide contact information, and asks for a copy of the employer's most recent State Fund payroll report. The employer is then asked to fax or email the information to Tangram. WIA declined comment.

"I am not at liberty to discuss anything with the media," says Nicole Madison, executive director of Western Regional.

Riley Binford, listed on the fax as the contact for Tangram Insurance Services, would not comment, except to say that producers using an MGA are not unusual.

State Fund Responds—Sorta

State Fund appears to take the association's effort to move its business in stride.

"Frank [DelRe] is running a business and I'm happy to stack our services against anyone else," says Jennifer Vargen, spokeswoman for State Fund. "State Fund is performing very well. We've reduced our premium rates 49% since SB 899 went into effect and we have the widest range of safety services in the industry."

Newly minted State Fund President Janet Frank sent a letter to State Fund brokers. In it she said, "I would like to take this opportunity to let you know that State Fund is committed to retaining your business by providing you and your clients with the best possible service." Beyond this sales pitch from the top, there seems to be little concern and little action about the implications.

But State Fund has far less than a stellar reputation with brokers as to its customer service.

Ms. Frank did not mention that the brokers own their business or that the carrier would make any effort to protect it.

In a follow-up conversation, Workers' Comp Executive asked Vargen about the privacy issues raised by brokers and concerns about proprietary information. Vargen says she can't speak to those things but that State Fund is going to be very "assertive" about keeping the business.

"As these policies come up for renewal, we'll be working with employers and their brokers to provide them with a quote for another group program or on an individual basis," Vargen says. "Retaining business is a priority for us. We try to work closely with brokers and associations to retain as much business as possible... . We run a business, too," Vargen says.

Bess Shapiro, Nils Wright and Dale Debber contributed to this story.

For a copy of Western Regional Master Builders Association letter and the response by State Fund President Janet Frank, online subscribers can click here or go to the Resources section of our website: www.wcexec.com