Workers’ comp fund drops middleman
California’s troubled, state-backed workers’ compensation insurance company will no longer renew contracts with its largest middleman, potentially affecting the coverage of about 25,000 mainly small and medium-sized employers.
The State Compensation Insurance Fund on Friday confirmed that it had stopped doing business with Long Beach-based Western Insurance Administrators Inc.
Western, which organizes individual companies into industry “associations” so they can qualify for deep premium discounts, says on its website that it has been doing business with State Fund, California’s largest insurer, for more than 50 years.
State Fund spokeswoman Jennifer Vargen declined to provide specifics about the cutoff of business. “We’re not going into any details about the whys. There’s lots of reasons,” she said.
Last fall, Western’s president, Frank DelRe, resigned his position on State Fund’s board of directors under pressure from the governor’s office. Another board member, Kent Dagg, executive director of the Shasta Builders Exchange in Redding, also resigned. Both stepped down amid conflict-of-interest allegations stemming from their participation in board actions that brought their firms tens of millions of dollars in revenue.
Western Insurance Administrators and Shasta Builders Exchange, along with other industry groups, have had special relationships with State Fund that allowed them to offer discounted workers’ comp policies to members. The relationship between the groups and the insurer, as well as other matters, reportedly is the target of a criminal investigation being conducted by the California Highway Patrol, the state Department of Insurance and the San Francisco district attorney’s office.
Western’s member employers who want to continue receiving the 6% group discount will need to affiliate with another association that does business with State Fund when it’s time to renew their current policies, said Scott Hauge, a San Francisco insurance broker who placed clients with Western. Or they could deal directly with State Fund and pay a higher rate, he said.
DelRe, Dagg, former State Fund President James Tudor and other former top executives at the fund also are defendants in a lawsuit brought by a Burbank construction company, seeking millions of dollars in damages for alleged self-dealing in group policy sales.
Neither DelRe nor Dagg could be reached for comment.
In March, Tudor and Renee Koren, a vice president in charge of group insurance programs, were fired by the State Fund board after an internal investigation raised questions about the propriety of the discounted policies.
People close to the investigation, who did not want to be identified because of the sensitivity of the criminal probe, said State Fund dropped its relationship with Western Insurance Administrators because the firm provided no real service to receive millions of dollars in so-called administrative fees over the years from State Fund, a quasi-public company.
According to a recent status report, State Fund began a review of all its group programs in March to make sure that participants provided verifiable safety programs for members that reduced workplace accidents and the frequency of costly claims.
“Conversely, groups that have not met all of their contractual obligations will not be offered participation -- unless they can conclusively demonstrate their willingness and ability to revamp their operations to meet the new standards of the program,” the report said.