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Comp insurer cites progress in housecleaning

In a status report to lawmakers, State Fund tells of improvements since executives' ouster.

August 29, 2007|Marc Lifsher | Times Staff Writer

sacramento -- The troubled state-backed workers' compensation insurance company sent a status report to lawmakers Tuesday, stressing its "significant progress in getting the organization back on track."

But the 10-page report from Jeanne Cain, chairwoman of the San Francisco-based State Compensation Insurance Fund, was silent when it came to detailing a criminal probe into what Department of Insurance officials say may involve more then $1 billion in misappropriated state funds.

"State Fund does not want to jeopardize the ongoing CHP investigation in any way," the report said.

The California Highway Patrol, the California Department of Insurance and the San Francisco County district attorney's office are part of a task force investigating former top executives at the insurer, which covers 220,000 employers.

The report summarizes a lengthy internal review that began about a year ago and led to the dismissal of former State Fund President James Tudor and Vice President Renee Koren in March. The board subsequently replaced its general counsel.

The three dismissals at the $3.6-billion State Fund underscore the board's findings that management mishandled a key program that involved the sale of workers' compensation insurance to employer groups, the report said. The groups were organized by outside companies that earned millions of dollars in so-called administrative fees on the group sales.

Some of the outside company executives served at various times as members of the State Fund board of directors.

"The administrative-fee program as operated by senior management was unacceptable," the report said.

Cain is scheduled today to brief Senate Banking, Finance and Insurance Committee Chairman Michael Machado (D-Linden) on the findings of her report, which focuses mainly on the need to improve the State Fund's management structure.

According to the status report, initiatives include the hiring of Janet Frank, the former vice president of North American field operations for CNA Financial Corp., as State Fund's permanent president.

The board has tightened the insurer's internal controls and contracting, strengthened corporate governance and reorganized the group policy sales program, the report said.

Looking ahead, the five-person board, which is appointed by the governor, is pushing for legislation to expand to 11 members. State Fund also wants to increase the number of its non-civil service executives to include a chief financial officer, a chief information technology officer and a chief investment officer, Cain said.

California Insurance Commissioner Steve Poizner, who is conducting his own "top-to-bottom investigation" of the insurer, said he was pleased that the report appeared to show "that progress appears to be underway" at State Fund.

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marc.lifsher@latimes.com

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