The top two executives at the quasi-governmental agency that sells a billion dollars worth of workers’ compensation insurance a year in California abruptly resigned without a public explanation.
State Compensation Insurance Fund President and Chief Executive Officer Tom Rowe and Chief Financial Officer Dan Sevilla checked out November 15 at a board meeting of the controversial $20 billion agency known simply as the State Fund. The moves were not widely anticipated. “Certainly many people were surprised in the room when the board chair made that announcement,” Jennifer Vargen, senior vice president of marketing and communications for the State Fund, told the Insurance Journal.
The agency competes with state-regulated private-sector insurers and also serves as the insurer of last resort for many small and medium-size employers. Those employers have historically had a hard time obtaining affordable, legally required coverage that provides medical care and compensation to victims of on-the-job injuries.
Rowe joined the State Fund in August 2010 after it had experienced some rough years. References to the State Fund in news stories throughout the decade were routinely preceded by the phrase “scandal-plagued.” The State Fund board ousted President James Tutor and vice president of group insurance programs Renee Koren in 2006 after an internal investigation turned up “unacceptable” operation of an administrative fee program.
An external audit linked financial transactions of the State Fund involving discounted policies to former board members. The California Department of Insurance said that as much as $1 billion may have been misappropriated.
Between the fall of 2006 and the end of 2007, two board members, several marketing executives and the board president’s general counsel left. An independent investigation of the agency that involved the California Highway Patrol and the San Francisco district attorney ensued but four years later the DA ended the probe and announced that no criminal charges would be filed.
Tutor was followed by Janet Frank in August 2007 as the Legislature and the governor introduced reforms aimed at cleaning up the $20 billion agency. In November 2008, the board held its first public meeting in 94 years.
The Los Angeles Times was still calling the State Fund “scandal-plagued” in June 2009 when Governor Arnold Schwarzenegger, faced with a $24-billion budget deficit, tried to raise $1 billion by selling part of the company. Insurance Commissioner Steve Poizner wasn’t a fan of the move and said, “A hasty or ill-considered sale could wreak havoc on the already volatile workers’ compensation market.”
The commissioner sued and the plan was abandoned six months later, but not before Frank resigned for personal reasons and was succeeded by Rowe.
In October 2011, about a year after Rowe took over for Frank, he announced his intention to reduce the annual operating costs by $350 million by laying off 1,800 employees at the state’s largest provider of workers’ comp. By the State Fund’s own reckoning, he reduced spending by more than $260 million. The Insurance Journal said the State Fund “appears to have done well” under Rowe and Sevilla.
The board announced it had appointed Pete Guastamachio interim CFO and State Fund General Counsel Carol Newman as interim president while it searches for a new CEO.