How To Deal With State Fund If You Must

In California, the State Compensation Insurance Fund aka “State Fund” exists as a market of last resort.  That means that if you can’t find insurance anywhere among the vast array of insurance companies licensed to do business in CA, don’t worry – you can always go to State Fund.

If you are one of the many employers in CA that has State Fund as your provider, you may have noticed that the way they interact with you is a little different than it is with other companies.  In fact, you may have found yourself frustrated and annoyed when your normal communication methods, ones that work well with other insurance companies and in everyday business in general, don’t seem to move anyone at State Fund.  You may have found yourself owing a lot of money or being asked a lot of questions with little explanation as to why.

You see, State Fund is a different beast, and when it comes to working with them you have to understand a few things.  For all those that have a State Fund policy: this post if for you.

If you are, have been, or are going to be insured with State Fund, you’re going to have to interact with them, and if you’re going to have to interact with them, you going to want to know what to expect, and if you want to know what to expect, you need to know about them.

Here are two facts about State Fund that help you get to know them.

The first fact is that they are the largest workers comp carrier in CA.  The most recent data I’ve looked at shows them at about 10% of the workers comp market, but in the past, they’ve been as high as 50% of the market.  50%!  Not bad for a “market of last resort.”

The second fact is that they are not a normal insurance company that exists for the same reason normal insurance companies exist.  State Fund is a state-run organization, which means they’re not a for-profit company.  Some people have called them the DMV of workers comp.  I don’t know who’s being insulted in that comparison, so I won’t comment further.  Regardless, State Fund exists to prevent employers from breaking the workers comp laws.  How so?  Follow me here: if the state is going to make a law that says employers have to have workers comp, and an employer can’t find a private workers comp carrier willing to insure him, he would be breaking the law.  Enter State Fund.  State Fund will insure any class of business regardless of how many claims they’ve had, how risky the venture is, or how long they’ve been operating illegally without workers comp in place.  State Fund is not in the business of being profitable, competitively priced, or providing great customer experiences.  They exist to keep the system working and employers legal.

Why are these facts important?  Because they create a state of being that affects the dynamics of your relationship with them.   What is that state of being?  You need State Fund: State Fund doesn’t need you.  They are the biggest workers comp carrier and they got that way because they took the rejects, the desperate ones (you).  You’re with them for a reason: you’re stuck.  They didn’t woo you with their dazzling power point presentations, brochures, or website (although they have made improvements to it).  They didn’t wow you with their promise of efficiently handling your claims or being tough on fraud.  They didn’t lure you with their great pricing and flexible payment plans.  Nope.  They don’t need to do anything to impress you.  You were down on your luck, getting cancelled by your previous insurer, and they took you in.  You are the one with the greater need in the relationship.   They are the party of least interest, and the party of least interest always has the most leverage.

OK, so you accept that what I’m saying is true.  How then should this affect your behavior with State Fund?  I’ve got two tips for you that can will make your time with them pass as fast as possible, keep your costs the lowest, and prevent any lapses in coverage from occurring.  Just two tips – that’s it.

One – Answer All Their Questions And Give Them What They Want.  State Fund will insure you.  You will qualify for insurance but they may just put you through a litany of questions and series of subpoenas for documents for things that make no sense at the time and would never get asked for by any other insurance company.  Yes, it’s ridiculous, but go with it.  This rule applies whether you’re applying for a new policy, or you have an existing policy in force.  If you’re applying for a new policy and you don’t give them what they want, they will simply not offer a quote for insurance.  Even if you’re a good paying customer and have a policy in force and you don’t give them what they want, they will cancel your policy midterm.  Let’s say you do give them what they want, but it’s a day too late.  Your  policy will cancel.   Do you think they’ll make an accommodation and reinstate your policy, like most insurance companies will?  The answer is No.  You will have to go through a final audit, and then re-apply for a new policy that can only be started once the final audit is paid.  This process can take months and you will be uninsured in the process.

Two – Pay Now, Dispute Later.  Yes, this is the opposite of how people operate in a polite society.  But if you withhold payment on monthly bill, deposit, or final audit for any reason, they will simply cancel you.  I once had a client refuse to pay a bill until State Fund answered his question about the accuracy of the bill.  My client felt that they had made a mistake and overcharged him.  He said “I’m not paying until they explain this charge to me.”  Guess what happened?  They cancelled him for non-payment of premium…. and they didn’t answer his question.  You see, a standoff with State Fund always results in a cancelled policy.  And like above, if you want to get back with them after they’ve cancelled you, you will have to go through a final audit first before you can reapply.  If you have a dispute with State Fund about a charge, by all means, bring it up to them and try to figure it out… BEFORE THE DUE DATE!

One last thing about payments: State Fund will never insure a business that owes them money.  You may have had them twenty years ago, moved on to greener pastures and got insured with a private carrier and skipped out on the final audit.  And then twenty years later (today) you, for whatever reason, have to go back to them.  They won’t insure you until that final audit bill is paid.  In full.  Even if your old business is defunct and you have a new business.  They track individuals.

I know how my advice sounds: be compliant, be weak, rollover, have no pride, be a yes man.. every character trait that is the opposite of what it took to get you to be a business owner in the first place.  I’m not saying be a passive little lamb.  Feel free to ask questions.  There are actually a lot of very nice helpful people over there.  And with some discussion, you may find they made a mistake and you have a way to correct them.  Or you may simply get an answer to your question.  What I’m saying is don’t try to throw your weight around, draw a line, or refuse to do X until they do Y.  Remember: they care less than you do about being insured.  They’re not hungry for your business, and they don’t need your money.  They are the party of least interest and they are totally willing to fold their cards and cash in their chips if you don’t give them what they want.

Also, you might try and get a good insurance agent that can help with the interactions that will at some point come up.  Yes, I’m talking about myself.  That’s a plug for me.  After almost forty blog posts, I’m allowed, right?  Anyway, regardless of who your agent is, good luck with the Fund and Godspeed.