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State Compensation Insurance Fund of California (State Fund) will discontinue all of its group insurance programs.

The state’s largest insurer will start phasing out the programs and stop renewing group agreements in April 2015. At the same time, the applicable group discounts will be eliminated for all policies April 1, 2015.

Groups have allowed like employers with good safety records to get together and form essentially a safety cooperative. Typically, an employer could join a group if it had an X-Mod that didn’t exceed a certain threshold. In return, the employer would receive a 6% discount on its premiums.

The groups also provide safety services, typically in the form of education. To help them provide these services, State Fund has been paying group administrators between 4% and 6% of the premium in administrative fees.

The latest move comes on the heels of State Fund’s decision two years ago to drop its stand-alone safety groups and tighten the eligibility criteria for trade associations that participate in the group insurance programs.

At the time, State Fund had agreements with 84 stand-alone safety groups that accounted for 25,000 individual workers’ comp policies in total. Also, it had agreements with nearly 200 trade associations across nearly that many class codes, which represented a similar number of policies.

Since the restructuring, the group insurance program has shrunk to just 35 trade association partners.

Groups have been advantageous for many reasons:

  • The 6% discount, which can be combined with other State Fund discounts.
  • Because the groups have a mandatory loss-control threshold, employers in groups have had an added incentive to create safe workplaces and reduce their claims costs.
  • Some groups have also had access to additional claims-management services, such as alternative dispute resolution for claims.
  • Some groups have performed claims review services.
  • Employers in groups receive industry-focused safety services that may include the interpretation of regulations, emergency-care planning, safety seminars, and a review of workplace accidents and their costs and trends.

 

State Fund says it made its latest decision in light of its move in March 2013 to implement a tiered rating structure, which puts employers into three levels based on their claims and loss histories and X-Mods, with Tier A being for the ones with the best loss histories.

The tiers work as follows:

  • Tier A – Employers receive a 38% reduction in premium
  • Tier B – Employers receive a 4.9% reduction in premium
  • Tier C – Employers receive a 25% increase in premium

 

State Fund says it performed an in-depth evaluation to understand how the group insurance discount was working with tiered rating.

Originally, the company introduced the group insurance discount to recognize and reward employers whose loss history demonstrated a culture of safety. Trade associations who had agreements with State Fund received an administrative fee, which as stated above averaged approximately 4-6% of premium.

The study concluded that the tiered rating plan has the same effect on policyholders as the group discount, reflecting individual performance and recognizing employers with demonstrated safety records with appropriate pricing.

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