The quasi-public State Compensation Insurance Fund is planning to lay off between 1,500 and 1,800 employees in jobs that officials say have been crowded out by evolving technology and business practices as the insurer battles for market share and to hold down its expenses.
State Fund estimates it will save $150 million per year in employee costs. It's the first time the organization has announced layoffs since the Great Depression.
The fund's 7,300 employees around the state received word in an e-mail today from State Fund President and CEO Tom Rowe.
"We don't have all the details yet," Rowe said in the e-mail, "but we anticipate layoffs being effective by the 2nd Quarter of 2012."
Fund spokeswoman Jennifer Vargen said that officials aren't ready to announce which facilities or counties would see the biggest staffing cutbacks.
According to a a layoff Q&A , the job classifications that will be hardest hit include auditors who examine payroll records to make sure that a business's insurance is sufficient to cover its liabilities. Other jobs on the cut list include program technicians, office technicians and other office staff. Officials will probably add more job classes as they finalize the layoff plan.
Lawmakers established State Fund in 1914. Today it is California's largest provider of workers' compensation insurance, taking on clients that private-sector insurers often dismiss.
That unique origin and role as California's "insurer of last resort" forces State Fund to operate with one foot in the private sector and the other in the public sector: It competes with private insurers and operates solely on investment returns and client premiums, but its employees are state workers.
The fund has struggled to contain costs. State Fund spends 90 cents for every dollar of premium it writes. The industry average is 40 cents. It "spends more operating the company than it does paying benefits to injured workers, which is extremely unusual in the insurance industry," according to a fund fact sheet that explains the rationale for the layoffs.
Meanwhile, the compensation insurance landscape has dramatically shifted and State Fund has been slow to respond.
In 2005, the fund controlled 53 percent of California's workers' compensation insurance market and employed 9,300 people. But since 2004, its premium volume has fallen 87 percent and its market share has decreased 70 percent. Staffing during that period has fallen 21 percent.
Evolving technology and business practices have boosted efficiency even as business dropped off, Vargen said.
"We usually make cuts through attrition," she said, "but that's not strategic."
The layoff announcement comes as the fund is consolidating offices, shedding real estate and moving some employees from expensive-to-operate areas such as San Francisco and Oxnard to cheaper areas such as Bakersfield and Vacaville. State Fund expects to save $200 million over three years from those moves.
Rowe said in today's e-mail that State Fund will handle the layoffs "as respectfully as possible" and is "prepared to invest significantly in doing the right things by employees who are displaced."
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