Message From the President

With a foundation of more than 100 years of serving California, State Fund is the trusted, reliable provider of workers’ compensation insurance for thousands of businesses. Millions of Californians rely on the security and certainty that State Fund offers employers, particularly the small businesses that are the backbone of California’s economy.

State Fund is fundamentally different than other workers’ compensation insurance companies.

As a self-supporting public enterprise, State Fund focuses its resources only on policyholders and their injured workers.
State Fund is the strong and stable option in California’s historically volatile workers’ compensation insurance market.
State Fund offers coverage to all California businesses.

Everything we do at State Fund is focused on fulfilling our purpose: To provide fairly-priced workers’ compensation insurance, help make workplaces safe, and restore injured workers. We are both humbled and energized by our responsibility, as we do the right thing for policyholders and injured employees.

I am pleased to share some of the significant accomplishments of 2016.

Pricing

We welcome a robust market, as employers benefit when insurance companies must compete for their business. 2016 marked another year of healthy competition in the California workers’ compensation market. Although State Fund’s premiums declined somewhat, we were pleased to introduce a rate filing that included an overall decrease in collectable premium of 9.5 percent as well as an expanded pricing model, which further enhances pricing accuracy and makes our rates more stable year over year.

Industry Leadership

We transitioned to an outcomes-based Medical Provider Network (MPN) to achieve the best possible medical outcomes for injured workers. The State Fund MPN by Harbor Health is comprised of medical professionals with demonstrated track records for effectively treating workplace injuries through use of evidence-based medicine.
We introduced an innovative safety incentive program for the roofing industry to improve safety records and reduce injuries in this high-risk profession. The program provides specialized on-site training and increased loss prevention consultation in addition to possible cash incentives.

More than 240 policyholders qualified for the first year, and we paid $519,402 in incentive payments. Some of the participants used the cash incentives they received to purchase safety equipment and to provide bonuses to reward employees who worked safely through the year.

We expanded our education seminars to reach more California employers and workers, and to cover more safety topics such as harvest safety, fall prevention, working in confined areas, and workplace violence prevention.
We earned the Independent Insurance Agents and Brokers of California (IIABCal) Golden Bear Award recognizing the work of our marketing representatives, who are critical to maintaining rapport with the brokers who sell State Fund policies.
We were named the 2016 Supplier Diversity Champion by the California Department of Insurance. Last year State Fund spent approximately $27 million with diverse suppliers in California.

Fraud Detection and Prevention

In 2016, State Fund reached successful resolutions with most of the defendants in two Racketeering Influenced and Corrupt Organizations Act (RICO) suits filed in 2013 (the few outstanding plaintiffs were successfully resolved in the first quarter of 2017). The purpose of the suits was to expose and prosecute a complex fraud scheme that was being perpetrated by a number of medical vendors in the California workers’ compensation system. Workers’ compensation fraud affects all stakeholders in the system and drives up costs for everyone. We took on this monumental four-year legal battle that spanned both federal and state civil courts because we are committed to fighting fraud. As a result we were able to expose this fraud to the light of day and bring greater awareness to the magnitude of medical fraud within the system so that more can be done to protect injured workers and policyholders. In settling these cases, we achieved some important benefits for injured workers. Many of the doctors involved will no longer treat our injured workers and will transfer care of their current patients. They also agreed to waive more than $40 million in liens at the Workers’ Compensation Appeals Board.
The National Health Care Anti-Fraud Association (NHCAA) honored State Fund’s Special Investigations Unit with their 2016 Investigation of the Year award. This award cited the Unit’s contributions to an FBI investigation that exposed a widespread workers’ compensation insurance bribery and fraud scheme, and resulted in 13 indictments.
We doubled our annual fraud restitution collection rates to more than $2.1 million, which helps level the playing field for California businesses.

Financial Stability

With increased returns on investment income and very strong surplus, our financial position remains very strong. Here are the financial highlights from 2016:

We wrote $1.5 billion in premiums for 128,000 policyholders.
Our investment income was $627 million.
Our net income was $192 million.
Our policyholders’ surplus grew by $156 million since Dec. 31, 2015.
Our combined ratio was 130.2 percent.

Thank you for your confidence in State Fund. I am honored to lead this vital California resource and proud of our performance in 2016.

Vern Steiner
President & CEO