CIGA Must Borrow to Meet WC Commitments

CIGA Must Borrow to Meet WC Commitments

NU Online News Service, May 16, 3:10 p.m. EDT?The financially strapped California Insurance Guarantee Association has been given permission by Commissioner Garamendi to dip into $170 million in funds earmarked for automobile and homeowners claims in order to meet workers' compensation obligations, according to Norman Williams, a spokesperson for the California Department of Insurance.

"The portion of the CIGA fund intended to pay workers' comp claims is gone," Mr. Williams noted.

In a letter dated May 16, 2003, Lawrence E. Mulryan, CIGA's executive director, informed Commissioner Garamendi that CIGA was facing "an acute financial crisis" stemming from the recent rash of workers' comp insurer insolvencies and the loss of a credit line. The credit line was being used to fund claim payments to injured employees whose employers had purchased workers' comp coverage from insurers that became insolvent.

"We realize that this is not a long-term solution," Mr. Williams said. "On a long-term basis, we need legislative reform of the workers' comp system to reduce the litigation and fraud that are raising costs so fast."

A long-term solution proposed by CIGA is the issuance of $500 million in tax-exempt 10-year revenue bonds to raise the funds needed to finance workers' comp claim payments, according to the letter from Mr. Mulryan.

CIGA's board of governors also considered seeking legislation to increase the assessment charged employers that purchase workers' comp policies. But that option was rejected as too burdensome on California employers, which are already paying high premiums, Mr. Mulryan's letter stated.