A Good Start to 2010: A Message from State Fund Interim President and CEO Doug Stewart
 I wanted to take a moment to share with you State Fund’s first-quarter financial performance and what it means to you. As you know, State Fund is different from other California comp writers. Our bottom line isn’t dictated by shareholder profits—it’s providing you and your clients with a strong and stable choice for workers’ compensation insurance. Always. No matter what kind of shape the market and economy are in.
So why should you care about our Q1 financials? Because our solid performance allows us to continue the pace of improvements we started two years ago to make State Fund more competitive and easier to do business with. In these times our mission is more important than ever to California. That’s why I am pleased to tell you that we started out 2010 much like we ended the prior year—with strong earnings, rock-solid financials, and continued progress in the modernization of our organization.
First-Quarter Results
For the first quarter, we met or surpassed almost all our financial and operational targets, though we fell short on the revenue side. We continue to do well managing loss, loss adjustment, and other underwriting expense. All three came in either at or below targets. Premium fell short of plan, as California deals with the ongoing challenge of high unemployment and smaller payrolls. Fortunately, our improved underwriting results and lower expenses, coupled with favorable investment results, produced a positive net income and addition to surplus for the quarter.
Our combined ratio continues to be high by industry standards and is a carryover from an earlier time when State Fund insured more than 50 percent of the workers’ compensation market in the state. Once many of these legacy claims are resolved, our loss adjustment ratio (LAE) will decline and lead to an improved combined loss ratio much more in line with industry norms.
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Net Income for Quarter
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Incurred Loss Ratio
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LAE Ratio
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Combined Ratio
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Policyholders' Surplus at End
of Quarter |
Q1-2010 |
$26 million |
75.2% |
48.4% |
171.2% |
$5.273 billion |
Q1-2009 |
$30 million |
75.5% |
50.9% |
164.4% |
$5.113 billion |
Rates Hold Steady
State Fund’s very strong capital position along with a longer-term approach to managing our business was a key factor in our decision to forego any request for a midterm 2010 rate increase. As the state’s leading provider of workers’ compensation, we understand how material the cost of workers’ compensation can be for our clients, especially for small business during this economic slowdown.
Thanks for the many notes and calls you have made about State Fund’s progress. I am very pleased how our staff across the enterprise has stepped up to tackle some more-than-challenging issues, never losing track of our mission to serve California’s employers and injured workers.
I look forward to seeing many of you later in the year.
Best wishes,
Doug Stewart, CPCU
Interim President and CEO
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State Fund’s Rate Filing Offers Competitive Enhancements for Better-Performing Small and Midsize Clients
State Fund recently filed a July 1, 2010, revision to our rating plan that will result in no change in collectible premium. But while the new rate filing is neutral overall, it contains several enhancements that should make State Fund more competitive for many of your clients with policies renewing on or after July 1.
We have slightly reduced manual rates (by 3.2 percent) and also adjusted some of our scheduled credits to provide underwriters with greater pricing flexibility for better-performing clients. The most significant change is a lower eligibility threshold for Merit Rating. Clients with renewal base premium of $25,000 to $59,999 will be eligible for a Merit Rating discount on the basis of an underwriting evaluation. Merit Rating replaces the Claims Free Credit for this premium level, allowing State Fund’s underwriters to consider a broader range of factors and reward clients accordingly.
These steps should improve State Fund’s competitiveness for better-performing small to midsize clients. For larger clients over $60,000 in premium, State Fund continues to offer Merit Rating. For smaller clients, the Claims Free Credit is still available to businesses with superior safety records and renewal base premium of $1,000 to $24,999.
A Word About Rate Stability
State Fund takes a conservative, long-term approach to pricing. For July 1, we are holding the line on average rates following moderate increases in recent filings. Even with the slight rate uptick since the beginning of 2009, it is important to note that our rates are still 43 percent lower than they were in the period before California began implementing workers’ compensation reforms.
In fact, our average rates are about where they were in 2006, meaning State Fund has offered you and your clients a five-year run of relatively stable pricing that is sharply reduced from pre-reform levels.
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Are Your Clients Channeling? How Our MPN Can Reduce Their Premium
 The State Fund Medical Provider Network (MPN) may help your clients lower their premiums. When your clients channel their injured employees to MPN physicians, State Fund is able to maintain medical control for the life of the claim and achieve cost savings.
Lower claims costs can result in a better experience modification rating. Additionally, for clients that qualify for a Merit Rating credit, one of the management factors our underwriters consider is how consistently clients refer their injured workers into the State Fund MPN.
Remind Clients of MPN Requirements
Injured employees also benefit from our MPN through effective medical treatment as well as the convenience of statewide network doctors and specialists. Your clients just need to follow a few simple rules to make our MPN effective in their workplaces. You can help your clients out by reminding them to:
- Provide the Employee’s Guide to the State Fund MPN (form 13176) brochure:
- To all employees before implementing the approved MPN.
- To new employees at the time of hire.
- To any employee who reports a work-related injury or illness.
- Post the Notice to Employees posting notice (form 13708 in English and form 13709 in Spanish) conspicuously in the work area. The posting notice should include their workplace’s MPN contacts.
- Report all work-related injuries to State Fund, and direct injured employees to receive treatment from a State Fund MPN provider.
If you or your clients have MPN questions or need copies of the above brochure or posting notice, please contact the State Fund Customer Service Center at (877) 405-4545, or download forms from our Web site.
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Update Roundup: The Latest on 8 Articles from Previous Issues
Each quarter Broker Update Online brings you news and information you can use in your brokerage. Below we provide recent developments on several topics that appeared in previous issues over the last year (with links to the original articles). Scroll down for all the updates, or use this list to quickly navigate to the topics you are most interested in:
Online Submissions and Straight Through Renewals: Business Made Easy
Originally appeared: Issue 4-2009 and Issue 1-2010
Update: State Fund’s online broker tools save time and improve workflow. If you haven’t yet uploaded a submission or processed a renewal online, we encourage you to give it a try.
- It’s easy to submit an application for insurance through State Fund Online. You can also use your Applied and AMS broker management system to upload a client’s ACORD application. Simply select State Fund as the carrier in the system’s linking program. (For AMS users, including Sagitta and 360 versions, you may need to enter State Fund’s NAIC number, 35076, when initially using the upload feature).
- State Fund’s Straight Through Renewal process is up and running. We invite you to rely on this online tool to streamline your upcoming client renewals. Log in to State Fund Online to review and approve renewals and submit any necessary changes to a client’s policy information (go to Quote > Renew Policy). It’s a convenient way for your brokerage to update your book and swiftly take care of your renewal business.
State Fund Subclasses: Savings Opportunities
Originally appeared: Issue 4-2009
Update: With our July 1 rate filing update, State Fund is continuing to offer 15 subclasses as a market opportunity for you and your clients. Our subclasses can deliver substantial premium savings for clients with qualifying operations within a standard industry classification. These subclass base rates are at least 15 percent lower than the standard classification rates and are available in farming, auto/truck operations, restaurants, and trucking. To find out whether your clients qualify and how much they may save, please contact your regional State Fund underwriting team.
State Fund Ad Campaign: More for 2010
Originally appeared: Issue 4-2009
Update: Last fall we introduced an advertising campaign to raise our visibility and help support your efforts to market State Fund to your clients. For 2010 we are amplifying this campaign of print and online ads and reaching out to brokers, trade associations, and employers. You can look for our ads in the print and online editions of such publications as Best’s Review, Business Insurance, Broker World, California Broker, Independent Agent, Insurance Journal, and Risk & Insurance.
The ads carry a simple message: State Fund is a strong and stable provider of workers’ compensation insurance. We make business possible and, as one of the ad headlines puts it, “we protect the people who make California work.” The campaign also highlights State Fund value differentiators that you can market to clients, including our safety services, claims expertise, strong financials, and group discounts. It’s another way we’re working to make it easy for you to do business with us.
Updated Ex-Mod Formula: Changes for Clients, and a New CE Course for You
Originally appeared: Issue 4-2009
Update: For 2010, the Workers’ Compensation Insurance Rating Bureau (WCIRB) adjusted the formula for calculating experience modifications (ex-mods). The WCIRB recently analyzed 82,000 ex-mods issued using the new criteria, and it says the impact on employers is in line with its expectations:
- About 64 percent of experience-rated employers are seeing a lower ex-mod as a result of the changes, and 7 percent are unaffected.
- About 29 percent of employers are receiving a higher ex-mod, with 7 percent seeing jumps of more than 11 points. The WCIRB says the largest increases are happening to clients with worse-than-average loss experience.
To help our broker partners better understand the ins and outs of ex-mods, State Fund has created a new CE course, Experience Rating Plan. We will begin offering this class in the coming weeks. For more information, please contact your State Fund marketing representative.
Medicare Mandatory Reporting for Insurers: Delayed
Originally appeared: Issue 2-2009
Update: The federal agency in charge of Medicare deferred the implementation date for Secondary Payer reporting requirements from April 1, 2010, to January 1, 2011. Under the reporting rules, insurance providers must verify whether their claimants are Medicare beneficiaries. By receiving this information in mandatory quarterly reports from insurers, Medicare can identify the “primary payer” responsible for medical expenses related to a claim.
The nine-month delay gives more time for Medicare to refine requirements, and insurers to update procedures, for reporting compliance. At State Fund, a dedicated team has been working on systems enhancements, and we’re on track to meet our legal obligations for sharing information on Medicare-eligible claimants. At this time, the reporting program does not impose any additional obligations on brokers or your clients insured with us. Clients need only to continue with timely reporting of any workplace employee injuries to State Fund.
DWC “Bring ’em Back” Campaign: A Budget Victim
Originally appeared: Issue 3-2009
Update: The state Division of Workers’ Compensation was offering employers reimbursement of up to $2500 for purchases made to modify a workplace for returning injured employees to work. Unfortunately, the “Bring ’em Back” campaign has been discontinued because of a lack of funding.
Broker Update Online Mailing List: Join In
Originally appeared: Issue 4-2009
Update: We have been inviting readers of Broker Update Online to request direct automatic delivery of each new issue. You are welcome to join other insurance professionals who have their own e-mail subscriptions. It may be quicker and more convenient than having to wait for your brokerage’s e-mail copy to be forwarded to your inbox. To get linked up, all you have to do is send an e-mail to webmaster@scif.com with contact information (name, e-mail address, and brokerage) for each recipient. It’s free, and safe—the e-mail list is used only for Broker Update Online.
Employer Education Series: Free Learning and Training Opportunities
Originally appeared: Issue 3-2009
Update: This summer State Fund’s Employer Education Series kicks into high gear with a number of timely, helpful seminars throughout California. A highlight of the summer schedule is our Heat Illness Prevention for Outdoor Work seminar, presented in partnership with Cal/OSHA Consultation Service. This seminar covers the latest heat illness prevention laws and provides clients with information on how they can protect their employees in summer heat. It’s also a great opportunity for you and your clients to get expert answers on effective training and compliance.
The workshop is offered in both English and Spanish and may also be used for continuing education credit for the farm labor contractor license requirement. For a calendar of events and free registration, please visit the State Fund seminars page.
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