It seems like an eon ago, when then-Insurance Commissioner and now-Lieutenant Governor John Garamendi went to war with State Compensation Insurance Fund (SCIF). This celebrity death match was ultimately resolved by events larger than the egos of the two combatants. Legislative reforms in Assembly Bill 227 (Vargas), Senate Bill 228 (Alarcon) and Senate Bill 899 (Poochigian) effectively sanitized the clearly profound reserve deficiencies of SCIF, and further legislative action, AB 2125 (Vargas), resolved the thorny issue of how to conserve SCIF without allowing the commissioner to in essence become governor when it comes to managing that particularly annoying division of the Department of Industrial Relations.
Unlike current Commissioner Steve Poizner, Commissioner Garamendi really did seem to care about what happened on his watch. Consequently, as SCIF works its way effortlessly through the legislative process of expanding its board of directors and getting its lusted-after exempt upper-management positions, the Department of Insurance is remarkably missing in action. While its examiners are out in the field essentially asking private carriers for Sarbanes-Oxley compliance information, consistent with new examination requirements in place, or soon to be adopted, from the National Association of Insurance Commissioners (NAIC), SCIF distances itself from SOX requirements while trying to negotiate the complexities of not making public records and open-meeting law requirements apply to its Byzantine operations.
This play could be elevated beyond the element of farce if there were a commissioner willing to grab the media and elucidate a vision beyond the parochial interests of the administration and termed-out legislators. John Garamendi would do that.
Instead, we are left with a process that will bake up half a loaf. Though it smells good in the oven, at the end of the day it will leave the workers’ comp community hungry and the public unfed and ignorant. There is much to be concerned about as we move forward with ever-increasing loss ratios and the specter that the coming double-digit pure premium rate increase justified by deteriorating loss experience will instead be turned into an inadequate press release by a Department of Insurance whose mission is to generate more support from the business community.
While this is happening, SCIF manages to dodge another bullet. It has, over the past decade, shown a remarkable resiliency in the wake of scrutiny by now-Congresswoman Jackie Speier and now-Lieutenant Governor John Garamendi. It has done so because it has the luxury of time, and this government agency has highly paid lobbyists working in its name.
It can wait out crusading officials who see that change needs to occur until their term-limited existence compels them to move to a different forum. Administrations in pari delicto with SCIF in the aberrations in the marketplace will do little if anything to recast SCIF’s role, because it would compel an admission that they too really didn’t care what happened in the marketplace as long as no one was grousing about the cost of workers’ comp insurance.
If one looks at the enumerated scandals involving SCIF over the past decade, and the legislative and regulatory responses to those scandals, one can only wonder what policy makers are thinking as they try to gloss over the abuses in the administration of safety groups and the unholy relationship between associations, SCIF and brokers. Regulatory hearings on this questionable trinity have, to date, produced nothing. No legislation was introduced on this issue.
Management issues at SCIF seem to have been addressed by the responses to the hand-in-glove joint review of SCIF’s operations conducted by the Department and SCIF. If you don’t remember the gist of that review, it is to be expected. The high-decibel “Kumbaya” sung by the Department and SCIF likely drowned out the message.
Remember that SCIF’s response to the Department’s consultants’ report was released on its websites and fed by its private public relations counsel to the big-time media before the Department managed to release its own report. The result was copy about the report, mollified by SCIF’s response. And remember, too, that they both got away with it.
As we move toward the end of the legislative session, bills will be signed and “reform” will be proclaimed. The distinction between 1998 and 2008 will be blurred, and market trends – with the corresponding regulatory inaction – will move us inexorably toward another crisis. As Commissioner Garamendi repeatedly noted, SCIF is the market leader. When the market heads south, SCIF remains in the van. Then, as now, no one wants to hit the brakes.