State Funds: Are they Really Worth it?

Tuesday, May 31, 2011 | 0

By James Moore
J&L Risk Management Consultants

I read today where California State Compensation Insurance Fund has requested legislation to expand their coverage into non-California states for its insureds. I was wondering if this would be the first step into privatization and expanding into other states to write coverage there, as Brickstreet had done in West Virginia. That would be covered best in another post.

I actually thought it would be better to look at the forest and not the trees in this situation. Are state funds be they monopolistic or as insurer of last resort actually worth having in place for workers' compensation insurance?

State funds such as SCIF in California and the Bureau of Workers' Compensation in Ohio have come under heavy scrutiny for various legal problems, such as investments and vendors. If one looks at what the state funds actually charge or deviate from the advisory loss costs, it can be a shocker.

In our premium reviews for employers, we have seen state funds file for up to a 211% increase over the advisory loss costs where the next highest carrier was 147% . I will not name the state as I have been threatened with enough lawsuits due to this blog.

Some of our clients have expressed frustration over the service level they receive from state funds. The deficient level of service has often resulted in companies contacting us about our services. I wanted to add in that the level of service has improved from comments we have received lately about state funds.

One of the concerns that we have during premium and reserve reviews is finding out the proper person to talk to about an issue. We have often discovered the person handling, for example, audit disputes for a certain region has been moved to another region, been promoted, or left for another company. This means the client employer has to start from square one again.

One thing that makes me have an assurance that state funds are necessary is when the fund operates as an insurer of last resort. The aforementioned 211% factors in the "we do not turn away any company" legislative requirement of most state funds. When a carrier decides to write very risk or high E-Mod/X-Mod/Ex-Mod companies, it has to make up for the deficit somehow.

James Moore is owner of J&L Risk Management Consultants, an employer consulting firm based in Raleigh, N.C. This column was reprinted with his permission from his blog, http:////blogs.cutcompcosts.com/