Exclusive

As part of the ongoing California state budget negotiations the ‘Big 5’ agreed over the weekend that the bill directing the Department of Finance to sell parts of State Compensation Insurance Fund is - repeat – is going into the budget.  Highly placed sources near the budget negotiations told Workers Comp Executive that the sale provision allows the legislature and governor to use the prospective $1B in revenue as income to balance the budget. It is as if the funds were real. But the funds are not real.

The bill, already rife with controversy, directs the Department of Finance to sell some as yet unknown parts of State Fund within two years for $1Billion. The legislation specifically excludes both the Department of Insurance and the Attorney General from any role in the sale.

While State Fund board approval is required in the draft language Workers’ Comp Executive already provided it readers, our sources could not confirm if that language remains exactly the same of if the board approval requirement has been removed.

State Fund’s board, all Schwarzenegger appointments, voted unanimously against authorizing the measure. The Board took the unusual step of voting on a topic that had not yet become law because the discussion is creating market disruptions.

So, unless the provision for approval by State Fund’s board has been removed, there can be no sale. That equals$1B worth of funny money in the budget.

“If the Governor’s office is being told this will not wreak havoc with the market, it is being badly misadvised,” one executive who asked not to be identified tells Workers Comp Executive. The executive agreed that without predictability and stability the market will change for the worse.

California Insurance Commissioner Steve Poizner is also opposed to the measure.

Selling parts of State Fund’s assets has the potential to create a perfect storm for California in which more carriers depart the state or lower writings requiring State Fund to take on more business at a time when its assets have been sold and are no longer big enough to cover the risk.  In this situation The Commissioner would be forced to ask the legislature to put State Fund in to some sort of managed or run off mode while it creates a new alternative market.

Jeannie Cain, State Fund Board chair has been explaining the issue to legislators from State Fund’s perspective. According to sources involved, she indicates the discussion of this has already lost State Fund renewals in preferred lines. In order to offset the premium departures State Fund will likely need to increase what it charges the 180,000 small businesses it insures.

Filed in Sacramento by Dale Debber

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