Existing law provides for the existence of the State Compensation Insurance Fund (SCIF) to be administered by a board of directors for the purpose of transacting workers compensation insurance, and insurance against the expense of defending any suit for serious and willful misconduct, against an employer or his or her agent, and insurance for employees and other persons of the compensation fixed by the workers compensation laws for employees and their dependents. Existing law requires the board of directors of SCIF to appoint a president, a chief financial officer, a chief operating officer, a chief information technology officer, a chief investment officer, a chief risk officer, a chief medical officer, chief actuarial officer, a chief claims operations officer, a chief of internal affairs, and a general counsel.

This bill would authorize the board to appoint additional executive and management positions deemed appropriate by the board. The bill would limit the number of additional appointed positions to 8 senior management employees in the areas of underwriting, technology, claims, finance, and actuary, and no more than 2 of those positions may be filled with licensed attorneys.

Existing law provides for the existence of the State Compensation Insurance Fund (SCIF) to be administered by a board of directors for the purpose of transacting workers compensation insurance, and insurance against the expense of defending any suit for serious and willful misconduct, against an employer or his or her agent, and insurance for employees and other persons of the compensation fixed by the workers compensation laws for employees and their dependents. Existing law authorizes requires the board of directors of SCIF to appoint a president, a chief financial officer, a chief operating officer, a chief information technology officer, a chief investment officer, a chief risk officer, a chief medical officer, chief actuarial officer, a chief claims operations officer, a chief of internal affairs, and a general counsel.

This bill would additionally authorize the board to, until December 31, 2021, to appoint additional executive and management positions deemed appropriate by the board. The bill would limit the number of additional appointed positions to 40. 8 senior management employees in the areas of underwriting, technology, claims, finance, and actuary, and no more than 2 of those positions may be filled with licensed attorneys.

Existing law provides for the existence of the State Compensation Insurance Fund (SCIF) to be administered by a board of directors for the purpose of transacting workers compensation insurance, and insurance against the expense of defending any suit for serious and willful misconduct, against an employer or his or her agent, and insurance for employees and other persons of the compensation fixed by the workers compensation laws for employees and their dependents. Existing law authorizes the board of directors of SCIF to appoint a president, a chief financial officer, a chief operating officer, a chief information technology officer, a chief investment officer, a chief risk officer, a chief medical officer, chief actuarial officer, a chief claims operations officer, a chief of internal affairs, and a general counsel.

This bill would additionally authorize the board to, until December 31, 2021, appoint additional executive and management positions deemed appropriate by the board, as specified. board. The bill would limit the number of additional appointed positions to 40.

Existing law provides for the existence of the State Compensation Insurance Fund (SCIF) to be administered by a board of directors for the purpose of transacting workers compensation insurance, and insurance against the expense of defending any suit for serious and willful misconduct, against an employer or his or her agent, and insurance for employees and other persons of the compensation fixed by the workers compensation laws for employees and their dependents. Existing law authorizes the board of directors of SCIF to appoint a president, a chief financial officer, a chief operating officer, a chief information technology officer, a chief investment officer, a chief risk officer, a chief medical officer, chief actuarial officer, a chief claims operations officer, a chief of internal affairs, and a general counsel.

This bill would additionally authorize the board to, until December 31, 2021, appoint additional executive and management positions deemed appropriate by the board, as specified.

Existing law provides for the existence of the State Compensation Insurance Fund (SCIF) to be administered by a board of directors for the purpose of transacting workers compensation insurance, and insurance against the expense of defending any suit for serious and willful misconduct, against an employer or his or her agent, and insurance for employees and other persons of the compensation fixed by the workers compensation laws for employees and their dependents. Existing law authorizes the board of directors of SCIF to appoint a president, a chief financial officer, a chief operating officer, a chief information technology officer, a chief investment officer, a chief risk officer, a chief medical officer, chief actuarial officer, a chief claims operations officer, a chief of internal affairs, and a general counsel.

This bill would additionally authorize the board to, until December 31, 2021, appoint additional executive and management positions deemed appropriate by the board, as specified.

 VETO  

Bill No: SB 1451

Author:

:

Vote:

SENATE INSURANCE COMMITTEE: 6-1, 4/13/16

AYES: Roth, Gaines, Hall, Liu, Mitchell, Wieckowski

NOES: Glazer

NO VOTE RECORDED: Berryhill, Hernandez

SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8

SENATE FLOOR: 34-1, 5/9/16

AYES: Allen, Anderson, Berryhill, Block, Cannella, De León, Fuller, Galgiani, Hall, Hancock, Hernandez, Hertzberg, Hill, Hueso, Huff, Jackson, Lara, Leno, Leyva, Liu, McGuire, Mendoza, Mitchell, Monning, Moorlach, Morrell, Nguyen, Pan, Pavley, Roth, Stone, Vidak, Wieckowski, Wolk

NOES: Glazer

NO VOTE RECORDED: Bates, Beall, Gaines, Nielsen, Runner

SENATE FLOOR: 38-1, 8/24/16

AYES: Allen, Anderson, Bates, Beall, Berryhill, Block, Cannella, De León, Fuller, Gaines, Galgiani, Hall, Hancock, Hernandez, Hertzberg, Hill, Hueso, Huff, Jackson, Lara, Leno, Leyva, Liu, McGuire, Mendoza, Mitchell, Monning, Moorlach, Morrell, Nguyen, Nielsen, Pan, Pavley, Roth, Stone, Vidak, Wieckowski, Wolk

NOES: Glazer

ASSEMBLY FLOOR: 79-0, 8/18/16 - See last page for vote

SUBJECT:

SOURCE: State Compensation Insurance Fund

DIGEST: This bill allows the State Compensation Insurance Fund (State Fund) board of directors (board) to appoint 8 additional exempt senior management employees in the areas of underwriting, technology, claims, finance, and actuary, and no more than 2 of those positions may be filled with licensed attorneys.

ANALYSIS:

Existing law:

1. Establishes State Fund, a quasi-state agency, for the purpose of transacting workers’ compensation insurance, to be administered by a board with full power, authority and jurisdiction to conduct the business of the Fund;
2. Directs State Fund to be fairly competitive with other insurers, and states the intent of the Legislature that it be neither more nor less than self-supporting;
3. Requires the board to appoint a president, chief financial officer, chief operating officer, chief information technology officer, chief investment officer, chief risk officer, general counsel, chief medical officer, chief actuarial officer, chief claims operations officer and chief of internal affairs; and specifies that these positions are not subject to otherwise applicable provisions of the Government Code and the Public Contract Code (exempt non-civil service positions);
4. Specifies that the Milton Marks Postgovernment Employment Restrictions Act applies to the Fund and its board and appointed employees;
5. Specifies that the board and appointed officers are prohibited from lobbying State Fund for two years after leaving employment with State Fund.

This bill allows the State Fund board to appoint 8 additional exempt senior management employees in the areas of underwriting, technology, claims, finance, and actuary, and specifies that no more than 2 of those positions may be filled with licensed attorneys.

Background

State Fund was created by statute in 1914 to act as a workers’ compensation insurer for the state and to serve as the workers’ compensation insurer of last resort in the private market. It also serves as a Third Party Administrator (TPA) for self-insured public and private employers. The State of California is its largest TPA client. Although created by the Legislature, it is operated as a private non-profit enterprise, and is supposed to be “neither more nor less than self-supporting.” The State of California is not liable for any obligations of State Fund. It is regulated by the California Department of Insurance as a private insurer, but has only such authorities as are granted by statute.

Most of State Fund’s employees are civil servants. State Fund’s board currently has statutory authority to appoint 11 exempt officers: president and CEO, chief financial officer, chief operating officer, general counsel, chief information technology officer, chief investment officer, chief risk officer, chief medical officer, chief actuarial officer, chief claims operations officer, and chief of internal affairs. State Fund had cited its need to have more flexibility with its workforce and salaries to help it operate more efficiently and effectively in the workers’ compensation marketplace. It is the largest workers’ compensation insurer in California, currently writing approximately 12% of the market. Its share has fluctuated significantly, and at one point as a result of severe market disruptions, its share exceeded 50% of the market. A private insurer of this magnitude would have a number of highly paid employees with high degrees of specific expertise. This bill is designed to facilitate greater efficiencies, better operations, and ultimately better results for California employers. According to State Fund, many of these positions have been filled with outside consultants and, as a result of new authority to fill these positions with exempt employees, State Fund expects to have a net savings.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

According to the Assembly Appropriations Committee, because State Fund is 100% funded by policyholder premiums and investment earnings from those premiums, its costs have no impact on either the General Fund or any Special Fund.

SUPPORT: (Verified 8/18/16)

State Compensation Insurance Fund (source)

OPPOSITION: (Verified 8/18/16)

None received

GOVERNOR'S VETO MESSAGE:

I am returning Senate Bill 1451 without my signature.

This bill grants the State Compensation Insurance Fund Board authority to appoint and set the salary for up to eight additional senior management positions.

Under limited circumstances it has been necessary for state agencies to have salary setting authority for certain positions. I'm not convinced this authority is justified in this instance.

ASSEMBLY FLOOR: 79-0, 8/18/16

AYES: Achadjian, Alejo, Travis Allen, Arambula, Atkins, Baker, Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Harper, Holden, Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Nazarian, Obernolte, O'Donnell, Olsen, Patterson, Quirk, Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Williams, Wood, Rendon

NO VOTE RECORDED: Roger Hernández

Prepared by:

10/25/16 14:29:23

**** END ****

 UNFINISHED BUSINESS 

Bill No: SB 1451

Author: Mendoza (D)

Amended: 8/4/16

Vote: 21

SENATE INSURANCE COMMITTEE: 6-1, 4/13/16

AYES: Roth, Gaines, Hall, Liu, Mitchell, Wieckowski

NOES: Glazer

NO VOTE RECORDED: Berryhill, Hernandez

SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8

SENATE FLOOR: 34-1, 5/9/16

AYES: Allen, Anderson, Berryhill, Block, Cannella, De León, Fuller, Galgiani, Hall, Hancock, Hernandez, Hertzberg, Hill, Hueso, Huff, Jackson, Lara, Leno, Leyva, Liu, McGuire, Mendoza, Mitchell, Monning, Moorlach, Morrell, Nguyen, Pan, Pavley, Roth, Stone, Vidak, Wieckowski, Wolk

NOES: Glazer

NO VOTE RECORDED: Bates, Beall, Gaines, Nielsen, Runner

ASSEMBLY FLOOR: 79-0, 8/18/16 - See last page for vote

SUBJECT: State Compensation Insurance Fund: executive and management appointments

SOURCE: State Compensation Insurance Fund

DIGEST: This bill allows the State Compensation Insurance Fund (State Fund) board of directors (board) to appoint 8 additional exempt senior management employees in the areas of underwriting, technology, claims, finance, and actuary, and no more than 2 of those positions may be filled with licensed attorneys.

Assembly Amendments reduce the number of new exempt executive and management positions the board is authorized to appoint from no more than 1% of the Fund’s civil service employees (currently approximately 44) to no more than 8, specified that the positions must be in specific areas of expertise, and eliminate the sunset on the new appointing authority.

ANALYSIS:

Existing law:

1. Establishes State Fund, a quasi-state agency, for the purpose of transacting workers’ compensation insurance, to be administered by a board with full power, authority and jurisdiction to conduct the business of the Fund;
2. Directs State Fund to be fairly competitive with other insurers, and states the intent of the Legislature that it be neither more nor less than self-supporting;
3. Requires the board to appoint a president, chief financial officer, chief operating officer, chief information technology officer, chief investment officer, chief risk officer, general counsel, chief medical officer, chief actuarial officer, chief claims operations officer and chief of internal affairs; and specifies that these positions are not subject to otherwise applicable provisions of the Government Code and the Public Contract Code (exempt non-civil service positions);
4. Specifies that the Milton Marks Postgovernment Employment Restrictions Act applies to the Fund and its board and appointed employees;
5. Specifies that the board and appointed officers are prohibited from lobbying State Fund for two years after leaving employment with State Fund.

This bill allows the State Fund board to appoint 8 additional exempt senior management employees in the areas of underwriting, technology, claims, finance, and actuary, and no more than 2 of those positions may be filled with licensed attorneys.

Background

State Fund was created by statute in 1914 to act as a workers’ compensation insurer for the state and to serve as the workers’ compensation insurer of last resort in the private market. It also serves as a Third Party Administrator (TPA) for self-insured public and private employers. The State of California is its largest TPA client. Although created by the Legislature, it is operated as a private non-profit enterprise, and is supposed to be “neither more nor less than self-supporting.” The State of California is not liable for any obligations of State Fund. It is regulated by the California Department of Insurance as a private insurer, but has only such authorities as are granted by statute.

Most of State Fund’s employees are civil servants. State Fund’s board currently has statutory authority to appoint 11 exempt officers: president and CEO, chief financial officer, chief operating officer, general counsel, chief information technology officer, chief investment officer, chief risk officer, chief medical officer, chief actuarial officer, chief claims operations officer, and chief of internal affairs. State Fund had cited its need to have more flexibility with its workforce and salaries to help it operate more efficiently and effectively in the workers’ compensation marketplace. It is the largest workers’ compensation insurer in California, currently writing approximately 12% of the market. Its share has fluctuated significantly, and at one point as a result of severe market disruptions, its share exceeded 50% of the market. A private insurer of this magnitude would have a number of highly paid employees with high degrees of specific expertise. This bill is designed to facilitate greater efficiencies, better operations, and ultimately better results for California employers. According to State Fund, many of these positions have been filled with outside consultants and as a result of this new authority to fill these positions with exempt employees, State Fund expects to have a net savings.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

According to the Assembly Appropriations Committee, because State Fund is 100% funded by policyholder premiums and investment earnings from those premiums, its costs have no impact on either the General Fund or any Special Fund.

SUPPORT: (Verified 8/18/16)

State Compensation Insurance Fund (source)

OPPOSITION: (Verified 8/18/16)

None received

ASSEMBLY FLOOR: 79-0, 8/18/16

AYES: Achadjian, Alejo, Travis Allen, Arambula, Atkins, Baker, Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Harper, Holden, Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Nazarian, Obernolte, O'Donnell, Olsen, Patterson, Quirk, Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Williams, Wood, Rendon

NO VOTE RECORDED: Roger Hernández

Prepared by:

8/19/16 19:21:51

**** END ****

SENATE THIRD READING

STR Bill Id:SB 1451

Author:(Mendoza)

As Amended Ver:August 4, 2016

Majority vote

SENATE VOTE: 34-1

SUMMARY: Authorizes the Board of Directors of the State Compensation Insurance Fund (SCIF) to convert civil service positions into exempt positions. Specifically, this bill:

1. Authorizes the board of directors (board) of SCIF to appoint additional executive and management positions, as deemed appropriate by the board.
2. Provides that the board may establish up to eight of these additional executive and management positions.
3. Specifies that these positions shall be in the areas of underwriting, technology, claims, finance, or actuarial.
4. Provides that no more than two of these positions may be licensed attorneys.
5. Provides that the board may set the salary for these additional executive and management positions, and that these employees are not subject to the civil service or state contracting rules that might otherwise apply.

EXISTING LAW:

1. Establishes SCIF as a quasi-state entity, generally subject to the civil service laws applicable to state agencies.
2. Provides that SCIF is a workers' compensation insurer that is authorized to compete in the market with private insurers, that also serves as the insurer of last resort for employers that are unable to obtain workers' compensation insurance from private insurers.
3. Provides that SCIF is governed by an 11 member board of directors, 9 of whom are gubernatorial appointees, and two of whom are Legislative appointees.
4. Authorizes the board to appoint the following 11 exempt officers: president, chief financial officer, chief operating officer, chief information technology officer, chief investment officer, chief risk officer, general counsel, chief medical officer, chief actuarial officer, chief claims operations officer, and chief of internal affairs.
5. Provides that these 11 employees are exempt from the normal civil service rules that govern SCIF employees, and authorizes the board to set their salaries.

FISCAL EFFECT: Because SCIF is 100% funded by policyholder premiums and investment earnings from those premiums, its costs have no impact on either the General Fund or any Special Fund. The Senate Appropriations Committee referred this bill to the Senate Floor pursuant to Senate Rule 28.8.

COMMENTS:

1. Purpose. According to the author, the SCIF board needs the flexibility to create additional exempt management positions, allowing it the ability to avoid hiring costly and ultimately temporary consultants, without having to come to the Legislature to approve each new position. Providing the SCIF board the authority to fill these positions with appointed employees will allow the organization to respond more quickly to the market and accelerate progress through a multi-year business transformation that more effectively supports California's workers, economy, and businesses by creating more stability in the marketplace.
2. History of exempt SCIF employees. Until 2009, SCIF had only one exempt position—the president and CEO. In 2008, AB 1874 (Coto), Chapter 322, authorized six additional specific exempt positions: a chief financial officer, chief operating officer, general counsel, chief information technology officer, chief investment officer, and chief risk officer. In 2013, AB 1394 (Insurance Committee), Chapter 309, added a chief medical officer, chief actuarial officer, chief claims operations officer, and chief of internal affairs to the list of specific exempt positions. In the case of each of these bills, SCIF made specific arguments to the Legislature why these additional exempt positions were appropriate. The Legislature agreed with these proposals, and approved the expansion of exempt employees. On the other hand, in 2012, SB 1406 (Emmerson) proposed to expand the number of exempt employees SCIF could employ by granting discretion to the board. After several iterations, SB 1406 was held in the Senate Appropriations Committee. Notably, the year after SB 1406 was held, SCIF returned to the Legislature with AB 1394 and a "specific authorization" proposal.
3. Managerial flexibility. SCIF is the largest workers' compensation insurer in California, currently writing approximately 12% of the insured market. Historically, it has been forced by market conditions to write substantially more than 12% – at one point exceeding 50% of the market. A private insurer of this magnitude would have a substantial number of highly paid employees with high degrees of specific expertise. This bill is designed to enable more efficiency, better operations, and ultimately better results for California employers.

Analysis Prepared by: Mark Rakich / INS. / (916) 319-2086 FN: 0003589

SENATE THIRD READING

STR Bill Id:

Author:(Mendoza)

As Amended Ver:

Majority vote

SENATE VOTE: 34-1

SUMMARY: Authorizes the Board of Directors of the State Compensation Insurance Fund (SCIF) to convert civil service positions into exempt positions. Specifically, this bill:

1. Authorizes the board of directors (board) of SCIF to appoint additional executive and management positions, as deemed appropriate by the board.
2. Provides that the board may establish up to 40 of these additional executive and management positions.
3. Provides that the board may set the salary for these additional executive and management positions, and that these employees are not subject to the civil service or state contracting rules that might otherwise apply.
4. Provides that the board's authority to appoint these additional executive and management employees terminates on December 31, 2021.

EXISTING LAW:

1. Establishes SCIF as a quasi-state entity, generally subject to the civil service laws applicable to state agencies.
2. Provides that SCIF is a workers' compensation insurer that is authorized to compete in the market with private insurers, that also serves as the insurer of last resort for employers that are unable to obtain workers' compensation insurance from private insurers.
3. Provides that SCIF is governed by an 11 member board of directors, nine of whom are gubernatorial appointees, and two of whom are Legislative appointees.
4. Authorizes the board to appoint the following 11 exempt officers: president, chief financial officer, chief operating officer, chief information technology officer, chief investment officer, chief risk officer, general counsel, chief medical officer, chief actuarial officer, chief claims operations officer, and chief of internal affairs.
5. Provides that these 11 employees are exempt from the normal civil service rules that govern SCIF employees, and authorizes the board to set their salaries.

FISCAL EFFECT: According to the Assembly Appropriations Committee, negligible state costs. SCIF is a quasi-governmental entity, but it is funded by policyholder premiums and investment earnings from those premiums, not state funds. SCIF reports that in some cases, the ability to create exempt positions instead of relying on consultant contracts could provide administrative cost savings.

COMMENTS:

1. Purpose. According to the author, the SCIF board needs the flexibility to create additional exempt management positions, allowing it the ability to avoid hiring costly and ultimately temporary consultants, without having to come to the Legislature to approve each new position. Providing the SCIF board the authority to fill these positions with appointed employees will allow the organization to respond more quickly to the market and accelerate progress through a multi-year business transformation that more effectively supports California's workers, economy, and businesses by creating more stability in the marketplace.
2. History of exempt SCIF employees. Until 2009, SCIF had only one exempt position – the president and CEO. In 2008, AB 1874 (Coto), Chapter 322, Statutes of 2008 – authorized six additional specific exempt positions: a chief financial officer, chief operating officer, general counsel, chief information technology officer, chief investment officer, and chief risk officer. In 2013, AB 1394 (Committee on Insurance), Chapter 309, Statutes 2013, added a chief medical officer, chief actuarial officer, chief claims operations officer, and chief of internal affairs to the list of specific exempt positions. In the case of each of these bills, SCIF made specific arguments to the Legislature why these additional exempt positions were appropriate. The Legislature agreed with these proposals, and approved the expansion of exempt employees. On the other hand, in 2012, SB 1406 (Emmerson) proposed to expand the number of exempt employees SCIF could employ by granting discretion to the board. After several iterations, SB 1406 was held in the Senate Appropriations Committee. Notably, the year after SB 1406 was held, SCIF returned to the Legislature with AB 1394 and a "specific authorization" proposal.
3. Managerial flexibility. SCIF is the largest workers' compensation insurer in California, currently writing approximately 12% of the insured market. Historically, it has been forced by market conditions to write substantially more than 12% -- at one point exceeding 50% of the market. A private insurer of this magnitude would have a substantial number of highly paid employees with high degrees of specific expertise. This bill is designed to enable more efficiency, better operations, and ultimately better results for California employers.
4. Sunset (sort of). The bill contains a date – December 31, 2021 – after which the discretion of the SCIF board to create additional exempt positions terminates. However, that language is not really a sunset clause in the traditional sense, because any positions already created would continue to exist past that date. It is the authority to create the positions, not the positions themselves, that sunsets.

Analysis Prepared by: Mark Rakich / INS. / (916) 319-2086 FN: 0003588

Date of Hearing: June 29, 2016

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez, Chair

SBPCA Bill Id:SB 1451

Author:(Mendoza) – As Amended Ver:June 14, 2016

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill allows the board of directors of the State Compensation Insurance Fund (SCIF) to appoint up to 40 additional executive and management positions, and sunsets this authority on December 31, 2021.

FISCAL EFFECT:

Negligible state costs. SCIF is a quasi-governmental entity, but it is funded by policyholder premiums and investment earnings from those premiums, not state funds. SCIF reports that in some cases, the ability to create exempt positions instead of relying on consultant contracts could provide administrative cost savings.

COMMENTS:

1. Purpose. According to the author, the SCIF board needs the flexibility to create additional exempt management positions, allowing it the ability to avoid hiring costly and ultimately temporary consultants, without having to come to the Legislature to approve each new position. The author indicates this flexibility will allow the organization to respond more quickly to the market and accelerate progress through a multi-year business transformation that more effectively supports California’s workers, economy, and businesses by creating more stability in the marketplace.
2. SCIF Governance and Operations. SCIF is California’s largest provider of workers’ compensation insurance. It was created by the Legislature in 1914 in order to ensure all businesses had an option for workers' compensation coverage when it became mandatory for businesses to provide coverage, and has grown since that time. It typically covers about 12% of the market, but has covered as much as 50% of the market. The State of California provides workers' compensation through SCIF. The SCIF board has 11 voting members, nine of which are appointed by the Governor, while the remaining two members are legislative appointees. The board also includes the Department of Industrial Relations Director as a non-voting “ex-officio” member. As a major player in the workers' compensation insurance marketplace, SCIF has similar demands for executive and managerial talent, as well as subject matter expertise, as a large private-sector insurer.
3. Support and Opposition. This bill is supported by SCIF, and opposed by California Attorneys, Administrative Law Judges and Hearing Officer in State Employment (CASE).

Analysis Prepared by: Lisa Murawski / APPR. / (916) 319-2081

Date of Hearing: June 22, 2016

ASSEMBLY COMMITTEE ON INSURANCE

Tom Daly, Chair

SBPCA Bill Id:SB 1451

Author:(Mendoza) – As Amended Ver:June 14, 2016

SENATE VOTE: 34-1

SUBJECT: State Compensation Insurance Fund: executive and management appointments

SUMMARY: Authorizes the Board of Directors of the State Compensation Insurance Fund (SCIF) to convert civil service positions into exempt positions. Specifically, this bill:

1. Authorizes the board of directors (board) of SCIF to appoint additional executive and management positions, as deemed appropriate by the board.
2. Provides that the board may establish up to 40 of these additional executive and management positions.
3. Provides that the board may set the salary for these additional executive and management positions, and that these employees are not subject to the civil service or state contracting rules that might otherwise apply.
4. Provides that the board’s authority to appoint these additional executive and management employees terminates on December 31, 2021.

EXISTING LAW:

1. Establishes SCIF as a quasi-state entity, generally subject to the civil service laws applicable to state agencies.
2. Provides that SCIF is a workers’ compensation insurer that is authorized to compete in the market with private insurers, that also serves as the insurer of last resort for employers that are unable to obtain workers’ compensation insurance from private insurers.
3. Provides that SCIF is governed by an 11 member board of directors, 9 of whom are gubernatorial appointees, and 2 of whom are Legislative appointees.
4. Authorizes the board to appoint the following 11 exempt officers: president, chief financial officer, chief operating officer, chief information technology officer, chief investment officer, chief risk officer, general counsel, chief medical officer, chief actuarial officer, chief claims operations officer, and chief of internal affairs.
5. Provides that these 11 employees are exempt from the normal civil service rules that govern SCIF employees, and authorizes the board to set their salaries.

FISCAL EFFECT: Because SCIF is 100% funded by policyholder premiums and investment earnings from those premiums, its costs have no impact on either the General Fund or any Special Fund. The Senate Appropriations Committee referred this bill to the Senate Floor pursuant to Senate Rule 28.8.

COMMENTS:

1. Purpose. According to the author, the SCIF board needs the flexibility to create additional exempt management positions, allowing it the ability to avoid hiring costly and ultimately temporary consultants, without having to come to the Legislature to approve each new position. Providing the SCIF board the authority to fill these positions with appointed employees will allow the organization to respond more quickly to the market and accelerate progress through a multi-year business transformation that more effectively supports California’s workers, economy, and businesses by creating more stability in the marketplace.
2. History of exempt SCIF employees. Until 2009, SCIF had only one exempt position—the president and CEO. In 2008, AB 1874 (Coto) – Statutes 2008, Chapter 344 – authorized six additional specific exempt positions: a chief financial officer, chief operating officer, general counsel, chief information technology officer, chief investment officer, and chief risk officer. In 2013, AB 1394 (Committee on Insurance) – Statutes 2013, Chapter 309 -- added a chief medical officer, chief actuarial officer, chief claims operations officer, and chief of internal affairs to the list of specific exempt positions. In the case of each of these bills, SCIF made specific arguments to the Legislature why these additional exempt positions were appropriate. The Legislature agreed with these proposals, and approved the expansion of exempt employees. On the other hand, in 2012, SB 1406 (Emmerson) proposed to expand the number of exempt employees SCIF could employ by granting discretion to the board. After several iterations, SB 1406 was held in the Senate Appropriations Committee. Notably, the year after SB 1406 was held, SCIF returned to the Legislature with AB 1394 and a “specific authorization” proposal.
3. Managerial flexibility. SCIF is the largest workers’ compensation insurer in California, currently writing approximately 12% of the insured market. Historically, it has been forced by market conditions to write substantially more than 12% -- at one point exceeding 50% of the market. A private insurer of this magnitude would have a substantial number of highly paid employees with high degrees of specific expertise. This bill is designed to enable more efficiency, better operations, and ultimately better results for California employers.
4. Sunset (sort of). The bill contains a date – December 31, 2021 – after which the discretion of the SCIF board to create additional exempt positions terminates. However, that language is not really a sunset clause in the traditional sense, because any positions already created would continue to exist past that date. It is the authority to create the positions, not the positions themselves, that sunsets

REGISTERED SUPPORT / OPPOSITION:

Support

State Compensation Insurance Fund

Opposition

California Attorneys, Administrative Law Judges and Hearing Officer in State Employment (CASE)

Analysis Prepared by: Mark Rakich / INS. / (916) 319-2086

 THIRD READING  

Bill No: SB 1451

Author:

:

Vote:

SENATE INSURANCE COMMITTEE: 6-1, 4/13/16

AYES: Roth, Gaines, Hall, Liu, Mitchell, Wieckowski

NOES: Glazer

NO VOTE RECORDED: Berryhill, Hernandez

SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8

SUBJECT:

SOURCE: State Compensation Insurance Fund

DIGEST: This bill allows the State Compensation Insurance Fund (State Fund) board of directors (board) to appoint additional executive and management positions, not to exceed 1 percent of the number of the Fund’s civil service employees; and sunsets that authority on December 31, 2021.

Senate Floor Amendments of 5/3/16 are technical and add co-authors.

ANALYSIS:

Existing law:

1. Establishes State Fund, a quasi-state agency, for the purpose of transacting workers’ compensation insurance, to be administered by a board with full power, authority and jurisdiction to conduct the business of the fund;
2. Directs State Fund to be fairly competitive with other insurers, and states the intent of the Legislature that it be neither more nor less than self-supporting;
3. Requires the board to appoint a president, chief financial officer, chief operating officer, chief information technology officer, chief investment officer, chief risk officer, general counsel, chief medical officer, chief actuarial officer, chief claims operations officer and chief of internal affairs; and specifies that these positions are not subject to otherwise applicable provisions of the Government Code and the Public Contract Code (exempt non-civil service positions);
4. Specifies that the Milton Marks Postgovernment Employment Restrictions Act applies to the State Fund and its board and appointed employees;
5. Specifies that the board and appointed officers are prohibited from lobbying State Fund for two years after leaving employment with State Fund.
   

This bill allows the State Fund board of directors to appoint additional executive and management positions, not to exceed 1 percent of the number of the Fund’s civil service employees; and sunsets that authority on December 31, 2021.

Comments

State Fund was created by statute in 1914 to act as a workers’ compensation insurer for the state and to serve as the workers’ compensation insurer of last resort in the private market. It also serves as a Third Party Administrator (TPA) for self-insured public and private employers. The State of California is its largest TPA client. Although created by the Legislature, it is operated as a private non-profit enterprise, and is supposed to be “neither more nor less than self-supporting.” The State of California is not liable for any obligations of State Fund. It is regulated by the California Department of Insurance as a private insurer, but has only such authorities as are granted by statute.

State Fund’s market share has fluctuated from a record high of 53% in 2000-2001 to a low of 10% in 2012, depending on the condition of the market. At the same time, State Fund’s workforce is part of the civil service, entitled to the same job protections as other state workers. Until 2009, it had only one exempt position—the president and CEO. An audit in 2007 uncovered serious operational and managerial improprieties, and criticized State Fund’s poor business and accounting practices and lack of a functional management team. In response, AB 1874 (Coto, Chapter 322 Statutes of 2008) granted State Fund six additional exempt positions, including a chief financial officer, chief operating officer, general counsel, chief information technology officer, chief investment officer, and chief risk officer. SB 1145 (Machado, Chapter 344 Statutes of 2008) made State Fund subject to the Bagley-Keene open meeting law. In 2013, AB 1394 (Committee on Insurance, Chapter 309 Statutes of 2013) added a chief medical officer, chief actuarial officer, chief claims operations officer, and chief of internal affairs to the list of exempt positions.

State Fund currently has approximately 4,400 employees, allowing it to appoint up to 44 new positions under this bill. According to State Fund President Vernon Steiner, positions they propose to fill with this new authority include a chief counsel, chief underwriting officer, chief information security officer, chief technology officer, chief administrative officer, senior vice president for premium audit, and senior vice president for safety and loss prevention. Many of these positions have been filled with outside consultants. As a result of this new authority to fill these positions with employees, State Fund expects to have a net savings of at least $1.7 million.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

SUPPORT: (Verified 5/4/16)

State Compensation Insurance Fund (source)

OPPOSITION: (Verified 5/4/16)

None received

ARGUMENTS IN SUPPORT: State Fund has sponsored SB 1451 because it will expand its ability to attract and retain staff with industry experience and specific expertise to continue its business transformation and respond effectively to market demands and changes. State Fund needs the ability to compete with the private market for such talent to bolster capabilities throughout the organization. This legislation will allow it to pursue management changes without having to seek legislative approval for each individual position.

Prepared by:

5/4/16 14:58:06

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SENATE COMMITTEE ON INSURANCE

Senator Richard Roth, Chair

2015 - 2016 Regular

Bill No: SB 1451 Hearing Date: April 13, 2016

Subject: State Compensation Insurance Fund: executive and management appointments

SUMMARY

Allows the State Compensation Insurance Fund (State Fund) board of directors (board) to appoint additional executive and management positions, not to exceed 1 percent of the number of the Fund’s civil service employees; and sunsets that authority on December 31, 2021.

DIGEST

Existing law

1. Establishes State Fund, a quasi-state agency, for the purpose of transacting workers’ compensation insurance, to be administered by a board with full power, authority and jurisdiction to conduct the business of the fund;
2. Directs State Fund to be fairly competitive with other insurers, and states the intent of the Legislature that it be neither more nor less than self-supporting;
3. Requires the board to appoint a president, chief financial officer, chief operating officer, chief information technology officer, chief investment officer, chief risk officer, general counsel, chief medical officer, chief actuarial officer, chief claims operations officer and chief of internal affairs; and specifies that these positions are not subject to otherwise applicable provisions of the Government Code and the Public Contract Code (exempt non-civil service positions);
4. Specifies that the Milton Marks Postgovernment Employment Restrictions Act applies to the Fund and its board and appointed employees;
5. Specifies that the board and appointed officers are prohibited from lobbying State Fund for two years after leaving employment with State Fund.
   

This bill

1. Allows the board of directors to appoint additional executive and management positions, not to exceed 1 percent of the number of the Fund’s civil service employees;
2. Sunsets the new authority to appoint additional positions on December 31, 2021.
   

COMMENTS

1. Purpose of the bill To give the State Fund board the flexibility to create additional exempt management positions, allowing it the ability to avoid hiring costly and ultimately temporary consultants without having to come to the Legislature to approve each new position. Providing the authority to fill these positions with appointed employees will allow the organization to respond more quickly to the market and accelerate progress through a multi-year business transformation that more effectively supports California’s workers, economy, and businesses by creating more stability in the marketplace.
   
   
2. Background The State Compensation Insurance Fund was created by statute in 1914 to act as a workers’ compensation insurer for the state and to serve as the workers’ compensation insurer of last resort in the private market. It also serves as a Third Party Administrator (TPA) for self-insured public and private employers. The State of California is its largest TPA client. Although created by the Legislature, it is operated as a private non-profit enterprise, and is supposed to be “neither more nor less than self-supporting.” The State of California is not liable for any obligations of State Fund.

As a non-profit quasi state entity, State Fund faces a mandate different from other workers’ compensation insurers: to maintain enough market share to remain financially stable and provide quality services, but not to compete for increased market share or make a profit. State Fund is required to report its business quarterly to the Governor, including its resources and liabilities, and to use an outside auditor to annually audit its books and operations.

State Fund insures a greater proportion of higher hazard construction and agricultural employers than other workers’ compensation insurers; in 2012 nearly one third of its entire book of business was construction employers. As a result, State Fund’s indemnity claim frequency is higher than other insurers. As noted above, the role of “insurer of last resort” has led to dramatic fluctuations in State Fund’s market share. Its market share has fluctuated from a record high of 53% in 2000-2001 to a low of 10% in 2012.

State Fund also must manage significant organizational and operational issues not faced by other insurers. State Fund’s workforce is part of the civil service, entitled to the same job protections as other state workers. Until 2009, it had only one exempt position—the president and CEO. AB 1874 (Coto 2008) granted State Fund six additional exempt positions, including a chief financial officer, chief operating officer, general counsel, chief information technology officer, chief investment officer, and chief risk officer. SB 1145 (Machado 2008) made State Fund subject to the Bagley-Keene open meeting law. In 2013, AB 1394 (Committee on Insurance) added a chief medical officer, chief actuarial officer, chief claims operations officer, and chief of internal affairs to the list of exempt positions.

1. Support According to the author, this bill supports workers and businesses by assisting State Fund in their efforts to recruit talent and become a more agile and efficient insurance organization by providing authority to the board to appoint a limited number of additional executive and management positions. Because State Fund currently lacks the authority to create additional exempt management positions and to hire employees without seeking specific legislation for each position, it is difficult for the organization to create a meaningful and consistent career path for the recruitment and retention of talent with industry experience and specialized technical skills. Currently, State Fund often fills this gap by hiring temporary contract consultants at costly rates. When consultants leave, knowledge expertise and institutional memory is lost.

State Fund has sponsored SB 1451 because it will expand its ability to attract and retain staff with industry experience and specific expertise to continue its business transformation and respond effectively to market demands and changes. State Fund needs the ability to compete with the private market for such talent to bolster capabilities throughout the organization

1. Opposition None received
   
2. Prior and Related Legislation
3. SB 1145 (Machado), Chapter 344, Statutes of 2008, authorized State Fund to appoint six "exempt" employees in addition to the , and requires State Fund to comply with the "Open Meetings" Law, subject to certain exceptions.
4. SB 1406 (Emmerson), 2011-12 Legislative Session, would have allowed the State Fund board of directors to appoint up to 20 positions exempted from the civil service appointment system.
5. AB 1394 (Committee on Insurance), Chapter 309, Statutes of 2013, allowed State Fund to appoint four additional “exempt” positions, a chief medical officer, chief actuarial officer, chief claims operations officer, and chief of internal affairs

POSITIONS

Support

State Compensation Insurance Fund (Sponsor)

Oppose

None received

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