Yesterday Insurance Commissioner Steve Poizner announced that he was filing a lawsuit against Governor Schwarzenegger’s Administration over a provision enacted in the July budget deal that would stop an illegal state raid of $1 billion in assets in the State Compensation Insurance Fund. Sound a bit confusing? I reached out to Poizner for some Q&A to walk FR readers through what the Commish is up to…
FlashReport: Can you explain the lawsuit you’re filing against the Schwarzenegger administration?
Poizner I am filing a lawsuit today to stop the state’s planned $1 billion of State Compensation Insurance Fund (SCIF) assets. The $1 billion transaction was authorized in the July state budget revision passed by the legislature and signed by the Governor.
FR: What is SCIF?
SP: Every employer is required to have workers’ compensation insurance. One of SCIF’s roles is the insurer or last resort. If a company cannot find insurance from a private insurance company, SCIF will sell them a policy. A good example of this is roofers. They have an inherently dangerous job and often, it is difficult or impossible to find insurance in the private market.
FR: Is it only roofers who use SCIF? Who are their clients?
SP: SCIF has 200,000 policyholders. Of that, nearly 75 percent are small businesses that have less than $5,000 in premiums per year. Overall, State Fund sells nearly one out of every five workers’ compensation insurance policy in the state. In terms of industries, Construction and agricultural workers are State Fund’s two largest industries, representing 27 percent of their business.
FR: Even so, what’s wrong with selling $1 billion in SCIF’s assets?
SP: It all comes down to rates. It is my job to ensure a stable and efficient workers’ compensation insurance market. At a minimum, even a potential sale causes a disruption in the market that could lead to higher rates for businesses. If this transaction does go through, our experts predict that the sale of SCIF assets will incur the risk of not having enough funds left to pay the remaining liabilities and as a result cost each of its 200,000 policyholders thousands of dollars in additional premiums.
FR: Even if rates go up, aren’t rates still lower than they were in 2003?
SP: In this recession, we know that any increased cost may lead to job loss or delay job creation. SCIF has been raising rates faster than the rest of the workers’ compensation insurance market. In the last year, it has raised rates by 25 percent – and that was before this scheme was passed.
FR: What is the specific legal argument being made?
SP: The lawsuit will ask a judge to rule that the transaction violates Article XIV, Section 4 of the California Constitution.
That constitutional provision requires the Legislature to enact “appropriate legislation” to establish a “complete system of workers’ compensation.” The system specifically includes SCIF as a self-supporting entity whose assets must be devoted solely to providing compensation to injured employees and their dependents. Selling State Fund’s assets for the purpose of benefiting the General Fund is not “appropriate legislation” within the meaning of Article XIV, Section 4. The statute authorizing the sale therefore violates that provision of the state constitution.
# # #