Let me preface this article with the following – I’m a red-blooded, free market capitalist. I’m a principal in a medium sized brokerage firm. Like many of you, I believe a private carrier should be able to do business with whom they want, when they want, and pay whatever amount of commission they want. But when a pseudo-governmental institution tries to play this game we call capitalism – it sends chills up our collective spines. False claims of trying to help out ‘small business’ only result in helping ‘bigger business’ squash the small guy. Again, if a big business can knock the small guy out of business by better pricing/efficiencies/service/etc. – by all means go to town. But when it’s the government, which gives the assist, we call this end result crony capitalism or unfair competition.
So here is our ax – the ax we all need to grind. We Californian’s enjoy the luxury of being able to work with the ever friendly State Compensation Insurance Fund, not so affectionately known as SCIF. In the workers’ compensation marketplace, they have been the carrier of last choice for us, and last resort for many of our clients, due to poor service, claims handling, and astronomically high rates. For the past 5 years, this really hasn’t been much of an issue due to the soft marketplace. However, as we all got hit in the face with the hard market January 1st, and impending doom of private carriers pulling themselves from the state, we see the inevitable on the horizon. We might now be forced to look at SCIF as one [viable] option for our clients. Damn.
Before you ask this producer if he’d like some cheese with his ‘whine’ or if you need to call the ‘wh-ambulance’ – let’s put our frustration into perspective. Mine is a specialized agency, who has ground through the economically trying past few years only to start enjoying the fruits of the marketplace turn around the past year.
Just as we were looking ahead to brighter days, we received ‘that’ letter from the State Fund. Effectively, it said, you don’t have enough business with us, so we’re terminating your appointment. (Well, maybe if you’re rates weren’t 50% higher than the surrounding marketplace the past 5 years…) Anyway, that’s a bummer, but I get it – oh wait! No I don’t. You aren’t a private carrier, you are some quasi-governmental elephant in the room that we’re forced to acknowledge despite a failure to be able to quote in a timely fashion, bill correctly or handle claims properly. You don’t get to play by the same rules as the private free market, or in the alternative sometimes you do and sometimes you don’t – when it suits you. And your underwriting losses are astounding.
I guess I reacted too quickly, as a bit further down the letter, I noticed that they were still going to give us access, but just through a wholesaler. Awesome! Maybe they are using their heads and realizing the efficiencies of the private marketplace to transact business for efficiently? Wrong. No, the poor wholesalers, unlike those who represent private carriers, will have no underwriting authority; they will simply be a pass-through funnel organization. Oh, and all that online information you used to be able to access for your clients policy information, effective January 1st, we’re taking that away from you too. But still, maybe the service is better right? No one can possibly have as poor service as the State Fund? Wrong.
It has gotten exponentially more difficult to get any information out of the SCIF having to try to get in touch through the wholesaler – through no fault of the wholesalers. Perhaps they have they made it intentionally difficult for brokers so they can hold their direct business?
Well, this is just a really bad situation, and our clients – California businesses — will be adversely affected. But at least we’ll still be able to make enough money to justify our exceptional service to them… wrong a third time. Ring the bell. No, we are going to slash your commissions so you get your renewal but after that we’re taking 40% of the commission away and new business pays 20% less commission as well. What little profit there may have been on a medium account is gone – if we do our job.
And to add insult to injury, we’re going to let our competitors with direct appointments keep profitable and competitive commissions.
But the hits just keep on coming. Guess who one of the two ‘wholesalers’ we have to work with are? One of them is one of the world’s largest brokers and – worse a direct competitor on the street for retail business. So let me connect the dots for you. We have to provide our competitor with full policy information, X-Dates, payroll in short everything they need to determine if they want to solicit it someday.
Shall we go on? State Fund has introduced a tiered rating plan effective 3/1, which apparently will make it more competitive for preferred accounts. Add to that plan carriers leaving California, and general market hardening and SCIF becomes a necessary alternative. Enter crony capitalism. Small and medium sized brokerages start to improve, the market begins to harden, and the State Fund decides they now want to start playing with their own set of cronies.
So they terminate several thousand appointments, slash renewal commissions by 40%, and give that 40% to whom? Oh yeah, to that really large brokerage firm who competes head to head with us on the street. Talk about backwards redistribution of wealth.
So where do we stand? I’m really not sure. But I hope that someone can figure this mess out, so we can afford to adequately service our clients who’ve had to enter that twilight zone known as the State Compensation Insurance Fund.