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STATE FUND RESPONSE TO DEPARTMENT OF INSURANCE STATEMENTS

 SAN FRANCISCO, Nov. 11 /PRNewswire/ -- The following was released today by the State Compensation Insurance Fund:
 State Compensation Insurance Fund (State Fund) cooperated fully with the Department of Insurance (DOI) over the long course of the audit. At the time State Fund implemented its Los Angeles Basin surcharging program, our loss ratio exceeded 140 percent in the area due to rampant fraud and the underground, cash, economy.
 Due to the understatement of payroll, the number of employees and misstatement of actual operations, State Fund was required to physically inspect premises before granting coverage to employers. Although this resulted in some coverage delays, it also uncovered significant safety violations. Corrections of these violations made coverage possible and protected the working people of California.
 The California Workers' Compensation Insurance Rating Bureau (WCIRB) rules stipulate minimum deposits. They do not stipulate any maximums. Although State Fund increased its deposit requirements during a period of high credit losses, it remained the insurer with the lowest deposits. The DOI figure of $12,000,000 in refunds is an estimate. State Fund has reviewed each and every policy, reduced deposits to the agreed minimum and the actual refund totaled $7.2 million. Checks averaging $493 were mailed to qualifying policyholders dated Sept. 28, 1993.
 Twenty-eight percent of new business policies were surcharged during the period in question. WCIRB data filed with the insurance commissioner indicate that State Fund's share of the residual market is higher than this. DOI data and testimony indicate that an average surcharge of 42 percent was probably too low. DOI estimates of a $9.4 million surcharge refund can not be validated until the payroll and experience on these policies has been reported and billed at the agreed lower surcharge.
 State Fund's policy files, as in most modern businesses, are converted to computer data and computer imaging. State Fund has agreed to maintain paper files on roughly 50,000 policies for one year, solely for the convenience of DOI auditors, while maintaining that our computer files are totally adequate and less expensive to maintain.
 Over the years, State Fund has maintained 800 numbers for the convenience of the public. The 800 number now provided is for the convenience of the DOI.
 State Fund admits the volume of consumer complaints was high during this period. This period was prior to the passage of fraud legislation when cries for reform were loud and legitimate. State Fund shared in that frustrating and difficult period and worked hard to achieve the reforms passed by the 1993 legislature.
 State Fund at all times acted with integrity and in an ethical manner. Our surcharging and deposit requirements protected the rates for 250,000 loyal and honest insured employers. Our actions helped preserve assets for legitimately injured workers and contributed to the provision of safer places of employment for California working people. On Sept. 10, 1993, unrelated to this matter, a dividend of $224 million was declared for the benefit of our policyholders.
 State Fund will be participating in Gov. Wilson's task force on the underground economy, which now costs the state $60 billion. This task force was announced by executive order on Oct. 26, 1993. Much of this $60 billion would be subject to workers' compensation premiums and would help to further lower costs for all California employers.
 State Fund has previously asked the insurance commissioner to promulgate guidelines for surcharging so that the insurance industry understands what the rules of the game are. Since State Fund is only one of the many workers' compensation carriers using surcharges, these guidelines are needed.
 The full text of our written response to the Department of Insurance, dated Aug. 20, 1993, is available upon request.
 NOTE: State Fund is a self-supporting, non-profit public entity, which assures the availability of workers' compensation insurance to all California employers and also competes with private insurance carriers. State Fund returns all funds in excess of expenses, claims and mandatory surplus to its policyholders.
 -0- 11/11/93
 /CONTACT: Renee Koren of the State Compensation Insurance Fund, 415- 565-1061/


CO: State Compensation Insurance Fund; Department of Insurance ST: California IN: INS SU:

TM-RB -- SF009 -- 3465 11/11/93 19:26 EST
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Date:Nov 11, 1993
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