Garamendi Eases Entry To State Fund When California Insurance Commissioner John Garamendi directed the State Compensation Insurance Fund to ease access requirements for small employers recently, the move did not represent a change of position, according to a department spokesperson.
"Mr. Garamendi did not change his mind," as was reported by some news media. Rather, he was "responding to businesses too small to get quotes from large insurers," said Nanci Kramer, deputy press secretary for the department.
Reaffirming his instruction that it remain Californias "insurer of last resort," Mr. Garamendi, on April 21, directed the State Compensation Insurance Fund to ease access requirements for small employers seeking workers compensation coverage. He said in a statement that he was directing State Fund management "to eliminate its requirement for those small employers who are not represented by a broker to provide proof of declination from three other carriers before submitting an application."
Small employers, he said, "have few options for coverage in the current market and should not be forced to undertake laborious and time-consuming processes before being allowed to apply at State Fund."
Before that, according to Ms. Kramer, small employers who would call an insurer would be told "Sorry, we're not going to bother even giving you a declination. They couldn't even get insurers to return their calls," she asserted.
The commissioner "is trying to accommodate the system for the smallest of employers"–those with $25,000 or less in estimated annual premium, she said. "These are the ones we were hearing from."
Mr. Garamendi directed State Fund to amend its review process, allowing small companies to "go directly to SCIF" without filling out a due diligence form, Ms. Kramer said.
Although larger organizations are no longer required to produce three letters of declination from insurers, "they can't still go directly to SCIF," she said. They must demonstrate that they have contacted three insurers.
(Written and signed declinations from other insurers will no longer be required. Instead, both employers and brokers will be allowed to file declarations with State Fund documenting their diligent, unsuccesful searches for coverage from the private market, according to the department.)
"Those are the kinds of things that we can follow up on and make sure they did contact those insurers," she said.
In March, Mr. Garamendi directed the State Fund to devise a business plan to address its serious financial problems. The organization has experienced exponential growth in recent years because of a lack of capacity in the market.
It now writes more than 50 percent of all workers comp policies in California. The approved plan calls for State Fund to address an urgent need to reduce premium writings, the department said.
As part of its plan, State Fund initially instituted an across the board "proof of declination" requirement to encourage brokers, agents and businesses to seek coverage in the private market.
A subsequent examination and analysis by Department of Insurance staff, however, found that State Fund could more effectively address its premium volume problem by shedding large companies that have the ability to acquire coverage elsewhere.
"As a result of todays directive, small employers who are not represented by brokers will be given greater and more direct access to State Fund coverage," Mr. Garamendi said, in his April 21 statement.
State Fund, he noted, will continue to provide coverage for employers who cannot find it elsewhere.
Ms. Kramer said that there is relief on the horizon in California. "Three or four" insurers have recently applied to "either come back into or enter the market for the first time. We have applications pending for a couple of companies," she said.
Reproduced from National Underwriter Edition, May 5, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.
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