Legislation intended to subject the State Compensation Insurance Fund to transparency and open meeting laws has passed the Legislature and is awaiting Governor Schwarzenegger's signature. The bill has an urgency clause, which means it will take effect immediately upon signing and will mean a significant change in the way SCIF's board of directors and its managerial team conduct business. It may or may not have the intended effect and the unintended consequences may be interesting as well.

Both SB 1145, authored by Mike Machado (D-Linden) along with companion bill AB 1874 authored by Joe Coto (D-San Jose), represent the efforts of well intentioned legislators to hold SCIF accountable. The requirements certainly hold SCIF to a higher level of transparency than before, but the question remains whether or not the spirit of true transparency will be honored. Even legislators questioned the extent of the exemptions SCIF requested. Several amendments later, some in the industry say the exemptions from disclosure are still too broad and too numerous.

The legislation was prompted by scandal broken by Workers' Comp Executive in the fall 2006 concerning former directors and officers. A lack of transparency allowed the management of this quasi-public enterprise to conduct its activities behind a veil of secrecy.

SB 1145 requires that SCIF comply with the California Public Records Act and that its board of directors be subject to the Bagley-Keene Open Meeting Act. But the exemptions are numerous and basically up to SCIF. Currently, SCIF's five-member board meets in private. SCIF says it is setting up procedures to handle public records act requests.

SB 1145 also allows the board of directors to appoint, in addition to a president, a chief financial officer and a chief operating officer, a chief information technology officer, a chief investment officer, a chief risk officer, and a general counsel. These ideas were first brought forward in an editorial April 2, 2007. You can read that SCIF Governance Proposal here

Some of the exemptions properly protect the confidentiality of injured workers' medical records and the details of criminal investigations, but other exemptions are more questionable considering the quasi-public nature of SCIF.

Preliminary drafts, notes, or interagency or intra-agency memoranda that are not retained by the public agency in the ordinary course of business would be kept confidential if in SCIF's judgment the public interest in withholding those records clearly outweighs the public interest in disclosure.

Records related to the discussions, communications, or any other portion of the deliberations from entities contracting or planning to contract with SCIF are also off-limits. Records related to impressions, opinions, recommendations, minutes of meetings or sessions that are lawfully closed to the public, research, theories, strategies, development of rates, contracting strategy, and underwriting would all be considered proprietary.

Contracts with SCIF would not be open for inspection until a year after execution. Rates would not be available until three years later.

Jeanne Cain, Board Chair of SCIF and Executive Vice President of Policy for the California Chamber of Commerce, was key in the negotiations with the legislature that broadened the exceptions to the bill's disclosure rules..

SCIF can also keep instructions, training and advice to its board members and employees regarding its special investigation unit and internal audit unit confidential under the rubric of trade secrets. This also extends to rating, pricing, underwriting, claims handling, audits and collections. Internal audits containing proprietary information and any papers, correspondence or memoranda pertaining to the audit would also be kept secret.

SCIF will not be able to keep secrets from regulators. The bill requires that the Joint Legislative Audit Committee, the Bureau of State Audits, Division of Workers' Compensation and the Department of Insurance have access to the proprietary information to guarantee compliance with applicable laws. But, the bill appears to require that no public report be made available after the inspection.

As far as open meeting requirements, SCIF would be permitted to keep a meeting closed if information related to the development of rates, underwriting, identifiable claims information, competitive strategy, audits, investigations, and the discussion of any matters that might prejudice the position of SCIF. But SCIF will also be required to provide an opportunity to any member of the public to be heard regarding the appropriateness of holding a closed meeting.

Legislators seem convinced that SCIF has made its case for keeping certain information proprietary in keeping with its role as an insurance carrier, even a quasi public one. If the governor signs the bill, will mean a new path of accountability and transparency for SCIF or just more of the same?