In the United States, we have the right to self-determination. Loosely translating, this is why we are saying that State Compensation Insurance Fund is – on a continuing and consistent basis - unfair to brokers and their clients, small California employers. It does not allow employers to fairly choose to give their own business to a broker rather than deal directly with State Fund. This means State Fund is depriving employers of a right to choose and the right to self determination on their own account. The unfair rule is that on accounts that have been directly written by State Fund – some 90,000 of them – brokers are allowed to become uncompensated servicers but are not allowed to own the account or receive commissions for handling it.

“What’s good for the goose is good for the gander, except at State Fund. They seem to think ‘What’s yours is ours and what’s ours is ours',” says Dale Debber, president of Compline. “Compline and its members are hereby publically calling upon new State Fund president Tom Rowe and the Board of Directors to create the change they promised – to comply with industry standards and allow normal broker of record relations with employers and brokers. It is time to be fair with and to trust producers.”

State Fund does not allow brokers who provide a legal broker of record letter to be fairly compensated when an employer wants State Fund to transfer their account (one SCIF has written directly) to a broker. This deprives employers of the right to transfer their own account to responsible licensed independent of State Fund brokers who can offer objective advice. These unfair rules are depriving brokers of fair compensation and ownership of an account that is rightfully between the broker and his employer client.

A number of issues are at work here. Some are about fairness, some about who owns an expiration date – or ownership of the account, some about money, some about legal issues, and some about legislation. This is important and we hope you read it all.

Compline hereby reiterates it call on State Fund, its new president Tom Rowe, and it’s Board to play fair, to play by the rules everyone else plays by, and to stop taking advantage of small employers. Compline calls on State Fund to immediately establish Broker of Record Letter rules consistent with the rest of the industry, allowing a small employer to choose its own broker and not be unfairly charged a commission that is never paid—a commission that helps support discounts for larger employers. Compline calls on State Fund to treat its own business the same way it treats brokers’ business.

Appropriates $47M Commission Dollars

Let’s begin with the realization that State Fund does honor the industry conventional Broker of Record Letter when an employer chooses to replace one broker with another broker. The old broker is notified, and the new broker gets the renewal and commission.

But when an EMPLOYER chooses to move its account—which was written directly by State Fund back when it was a direct writer and didn’t accept brokerage business—to a broker and away from State Fund, servicing the new broker gets only a service “right” and no commission.

Frequently, the employer is willing to pay the broker extra in the form of a broker fee for servicing its business—changing from a service it is likely unhappy with because of State Fund.

But here’s the major problem: State Fund keeps the commission and ownership of the account not only through the current year but forever. So in State Fund’s view, it is okay for brokers to fight it out and lose commissions between their selves, but it is not okay when a broker fairly competes with State Fund and earns its business. This is the same kind of dual mind-set that so frequently permeates State Fund’s arguments in the courts and Legislature. When it suits State Fund, it can act either as a government agency or a private company.

How many dollars are involved? A whopping $47 million dollars of commissions each year that would otherwise be in the hands of California brokers has been kept by State Fund through this unfair broker of record rule. This amounts to more than one-third of State Fund premium. Worse it helps to subsidize premium discounts for larger employers.

Compline and its members think it is time for State Fund to drop the duality and treat employers and brokers with the fairness and respect they deserve.

State Fund not only does not earn or return this commission but uses it to statistically subsidize larger accounts in the same classification.

Expiration Dates

In this day and age, many (but not all) expiration dates are either public records or are more or less public by virtue of employers providing them to competing brokers and lead generation outfits. But the concept of business ownership—the account—is equally, if not more, important.

A Broker of Record Letter provides ownership of the account to the designated brokerage firm and all that goes with it, like responsibility to recommend proper coverage. When State Fund allows a broker servicing rights but denies commissions or ownership rights, despite the employer’s wishes, it raises many issues that, to our knowledge, have not yet been litigated. Among those issues is State Fund’s abject appropriation of the ownership of the account – an asset the broker can own and sell but which is of no value to State Fund.

The issue is also one of fairness to California’s small businesses. Every other carrier writing business in California to our knowledge a honor broker letters and transfers ownership and commissions to the new broker, some at the time of the letter and some at renewal. California businesses deserve the right to choose independent brokers who can give them objective advice and handle problems, if any, between them and the carrier. State Fund denies employers that right by denying brokers fair compensation for their work.

Compline pledges to have legislation introduced in the next session—The State Compensation Insurance Fund Employer Fairness Act—to accomplish these goals, unless State Fund acts quickly to right this wrong. Contact Compline through the help desk if you would like to help to support this meaningful change.

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